Investors can expect the rally in US equities to keep rolling next year, even after a furious run that has pushed the S&P 500 Index up more than 50% since the start of 2023, as gains move beyond the popular Big Tech leaders.
Strength in corporate earnings and the US economy more broadly should keep driving the stock market higher in 2025, according to strategists at JPMorgan Chase & Co.’s asset management division led by David Kelly. The risks are high valuations and over-concentrated portfolio positions, along with policy uncertainty from President-elect Donald Trump’s administration. Still, they see enough positives to keep the momentum going for now.
“There’s nothing to suggest to us that the rally is necessarily just about to end here,” Kelly, JPMorgan Asset Management’s chief global strategist, said in an interview. “The next two years are going to see continued economic growth and, generally speaking, earnings will be going up.”
With the S&P 500 on track to close out its second-consecutive year of returns above 20%, some Wall Street pros are growing concerned that the run may be petering out as valuations become stretched. Kelly also acknowledged that there’s a chance of inflation returning based on Trump’s protectionist trade policies, raising the spectre that the Federal Reserve will have to dial back plans to reduce interest rates.
“There is a lot that can go wrong,” Kelly said. “If we did everything that Trump promised on the campaign trail with regard to tariffs, immigration and taxes, you could end up with significant inflation.”
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To hedge, Kelly recommends investors increase exposure overseas. International equities have long-term growth potential and dividend yields that are twice that of US equities, he said.
A sturdier stock-market leadership with sectors beyond megacap technology catching up is a key theme of JPMorgan Asset Management’s year-ahead outlook. Bloomberg’s index of so-called Magnificent Seven companies — Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. — is up 55% this year, more than twice the S&P 500’s advance.
JPMorgan Asset likes the financial sector, which it sees benefiting from deregulation and potentially higher-for-longer rates that drive up net interest income. Consumer companies focused on wealthy customers also should do well as demand for luxury goods and services continues to rise. Health care stocks are set to see positive performance given innovation in the industry. And investors should add small-cap shares to their portfolios as they bounce out of a cyclical recession.
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“I’d want to be as broad as possible,” Kelly said.
Like other forecasters across Wall Street, Kelly says that lofty valuations are a risk. He adds that concentrations within investment portfolios are higher, making equities more vulnerable to any potential shocks.
But while those risks loom and uncertainty grows around how the Trump administration will shape the economy, Kelly is hardly alone in his general optimism. Goldman Sachs Group Inc., Morgan Stanley, and UBS Group AG are all among the Wall Street heavyweights counting on further gains from the stock market in 2025.
