What to expect from the US stock market in 2025

Wall Street analysts generally expect stocks to post another year of gains in 2025 as a stronger economy and falling interest rates boost corporate earnings.
The gap between the Magnificent Seven and the rest of the market is expected to narrow as more companies begin to take advantage of artificial intelligence.
Small-cap and mid-cap stocks could do well in the coming year thanks to lower interest rates as well as an easier regulatory environment under incoming President Donald Trump.
Some analysts warn, however, that market volatility could increase after Trump returns to the White House, due to uncertainty about how his policy approach could affect the economy.

Stocks just had a banner year, and Wall Street is optimistic that US equities will continue to rise in 2025.

The S&P 500 gained 23% in 2024 after a 24% gain last year, its first two-year stretch of +20% returns since the late 1990s. Gains are not expected to be as strong in 2025, but market watchers say the outlook is generally positive.

Here’s what some analysts say you can expect from the stock market in the next year.

Corporate earnings are expected to be the main driver of stock returns in 2025.

Earnings growth has slowed over the past two years. Rising spending on artificial intelligence and a raft of cost-cutting measures have helped boost mega-cap tech profits. Meanwhile, the S&P 493—or the S&P 500 without the Magnificent Seven—sees profits shrink in 2024, though JPMorgan analysts expect the group to post double-digit earnings growth in 2025.

Gross profit growth for the Magnificent Seven is still expected to outpace the rest of the index, though by the slimmest margin in seven years, according to Goldman Sachs forecasts.

That’s one reason why equity analysts at Bank of America expect the equal-weighted S&P 500 to outperform its capitalization-weighted counterpart.

Artificial intelligence has been the buzz on Wall Street for more than two years now, and analysts see that continuing.

“We see AI buildout and adoption creating opportunities across sectors,” BlackRock analysts wrote in their 2025 outlook.

Goldman analysts have similar expectations. They say that the AI craze went through two “phases”: “Phase 1” focused exclusively on Nvidia (NVDA), whose advanced chips made it a key enabler of the AI boom; “Phase 2” was slightly more detailed and included companies that were essential to building the AI infrastructure.

Goldman analysts predict that 2025 will bring “Phase 3,” in which investors will turn their attention to companies monetizing AI. They expect software and services companies to be the primary beneficiaries of the next phase of AI development, and companies ranging from big names to tech giants Apple (AAPL) and Salesforce (CRM) to small-caps such as yext (YEXT) and box (the box) as strategic stock picks.

Some analysts expect a small-cap and mid-cap revival, though they note that it could easily be derailed or delayed.

Smaller companies are more dependent on floating-rate debt, meaning They benefit the most When interest rates fall, and the Federal Reserve is expected to continue cutting rates. They are also less likely than larger companies to operate internationally, which can insulate them from geopolitical tensions and possible strains on global supply chains.

Small- and mid-caps could also benefit from an easier regulatory environment under incoming President Trump, whose administration is expected to challenge corporate Mergers and acquisitions (M&A) less aggressive than Biden.

However, Trump’s policies could derail or delay the small- and mid-cap rally. Economists have warned that Trump’s tariffs and immigration policies Can prevent inflation And keeping interest rates high is a problem for both M&A and smaller firms’ balance sheets.

Donald Trump will return to the White House in January with what he calls a “historic mandate” to break with the status quo. He has promised dramatic changes in trade policy, taxes, regulation, immigration, and government spending.

Analysts are struggling to predict how these changes will affect the economy, “due to the fluidity of Trump’s policy positions, his unorthodox governing style, and the absence of a detailed, coherent framework guiding his statements.” Charles Schwab analysts wrote in their 2025. view

What is certain is that the year will include many twists and turns. Optimism about the economy and a favorable Trump administration have pushed stocks to record highs. They’re also trading at historically high valuations, which Goldman analysts note, “generally increase[s] The magnitude of the market decline during a shock.”

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