Key Takeaways
After two years of double-digit stock returns, Wall Street thinks the S&P 500 is capable of a threepeat.
The average analyst estimate points to the S&P 500 finishing 2025 at just a bit over 6,679, suggesting that the index will rise about 10% in the next calendar year based on Thursday's close, according to a report from FactSet Research analyst John Butters. Since its inception in 1957, the S&P 500 has returned 10.23% a year on average.
Butters also found that Wall Street analysts dramatically underestimated the market entering 2024. The consensus at the end of 2023 was that the S&P 500 would end this year at near 5,132, more than 15% below its current level. Analysts have underestimated stocks in four of the past five years.
However, over the long term, that streak of underestimation hasn't been the norm. Wall Street has overestimated the S&P 500's annual return in 13 of the last 20 years; on average, over the past two decades, the consensus has been too high by about 7%.
The report underscores the optimism on Wall Street about the strength of the U.S. economy and corporate profits. Morgan Stanley ( MS ) and Goldman Sachs ( GS ) have forecast the S&P 500 will rise to 6,500 next year as earnings growth accelerates for a broad swath of the index.
In a survey of financial advisors released last month , two-thirds said they expected the index to rise by at least 10% next year, but many warned that the market could experience some volatility.
The S&P 500 is on track to gain more than 20% for a second consecutive year, which hasn't happened since the 1990s. As of Thursday's close, the index was up 26.9% since the start of the year. The Dow Jones Industrial Average rose 16.5% in the same period and the Nasdaq Composite has surged about 32.6%.
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