The Big Picture

It has been a banner year for the stock market, and it isn't over yet. As we write, the S&P 500 stands at 5,961.37, leaving it up 25.0% year-to-date, excluding dividends.

In early December 2023 the aggregate prediction among industry analysts is that the S&P 500 would close at 5,068.41 in 12 months, roughly 10% higher than where it was trading at the time.

Industry analysts, though, ultimately got exposed for being too conservative with their return projections. Many would raise their price targets as the year wore on, but as far as starting points go, many pundits' 12-month price targets near the end of 2023 were woefully conservative.

What is the view to 2025, you ask? It is much the same.

Getting Comfortable

The median price target for the S&P 500 is 6,600, according to FactSet. That is 10.7% higher than where the S&P 500 stands as of this writing, and it is a "comfortable estimate." Want to know why?

Over the last 30 years, the average annual price return for the S&P 500 is 10.15%.

You can't go wrong really setting a price target in the neighborhood of a 10% return, and maybe that's the point. There is career cover in an estimate rooted in a long-term average.

Past performance is not a guarantee of future results, but it is a guarantee of group think. When you think of it, you never hear a cadre of Wall Street analysts projecting a material decline for the market over the next 12 months.

You might see one or two go off on their own to extreme places, but the herd typically grazes together and calls for at least a modest increase each year.

You just don't hear group negativity with price targets for a few reasons: (1) history shows that the market goes up most years and (2) it is bad for business.

Wall Street feasts on bull markets, not bear markets. Hence, pundits typically forecast higher prices for the year ahead.

Writing Is on the Wall

When it comes to the 2025 outlook, the writing is on the wall for pundits to provide higher price targets.

S&P 500 earnings are projected to increase 15.0% for calendar year 2025, president-elect Trump, who has an acute focus on the stock market's performance, has called for a lower corporate tax rate and less regulation, inflation should move lower if the Fed gets its way, and interest rate should move lower if inflation comes down -- should being the operative word.

Sticky inflation, or rising inflation, coupled with rising interest rates, could be a spoiler for a stock market already trading with stretched valuations. At its current price, the S&P 500 is trading at 22.1x forward 12-month earnings, which is a 22% premium to the 10-year average of 18.1, according to FactSet.

Notwithstanding the rich valuation, pundits are calling for further price appreciation. Here is what we have seen so far:

• Goldman Sachs: 6,500
• Morgan Stanley: 6,500
• BMO Capital: 6,700
• Wells Fargo: 6,600 (target midpoint)
• UBS: 6,400

In the coming days and weeks, more price targets for 2025 will be published. Don't be surprised if they are mostly around 6,600, give or take a percent. 

What It All Means

Price targets provide good marketing material but know off the bat that they are moving targets because nobody knows for certain what the future holds. There are rough outlines of what the future might hold, but the reality often does not match the expectations. That doesn't mean it has to be a bad thing.

2024 brought a lot of good things (and handsome returns) for investors that forced pundits to raise their price targets. 2025 might do the same or it might not. It is tough to quantify momentum.

Headed into the new year, pundits have reasons to ordain the continuation of the bull market and, true to form, the herd is moving in a way that sounds good (and is good for business).

--Patrick J. O'Hare, Briefing.com

(Editor's Note: the next installment of The Big Picture will be published the week of December 2)