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Stock Markets Analysis and Opinion

Could the S&P 500 Target 7000+ in 2025?

2025.01.06 02:11

As I run a market analysis service for over 8500 members and approximately 1000 money managers, there are a lot of things that are discussed and cited in our trading rooms. For example, this was noted by one of our members recently:

“I was just watching financial news [I know worst thing I could do.] The commentator was discussing the number of analysts on Wall Street declaring the 60:40 portfolio is dead. Forget about bonds, gold and cash. Investors should be 100% stocks and tech stocks should be the majority of that. Those of us who have been around for more than a minute have heard this before.”

That certainly sounds like quite a wildly bullish perspective being held by Wall Street analysts regarding the stock market, does it not? In fact, it would seem most analysts now view 7000SPX as in the bag for 2025.

I even read one analyst who wrote the following comment to an article I recently read:

“I’d say expecting SPY to rise only 10-15% next year is pretty bearish. It rose 25% in 2023 and 30% in 2024. It should rise about 25-30% again if it’s a normal year. Then again if we get a deep recession or something we’ll only rise about 10-15%.”

And, it is not just the analysts that believe the market will only go higher. These two comments were typical of what I read in the comments section to various articles:

 “we will NEVER see 4100 again”

“Better chance at 8k than 4K at end of 2025”

“A 20-25% drop of S&P is simply not possible.”

Going back to the Wall Street analyst perspective, I am sure that many of you have seen that the analysts from J.P. Morgan, UBS, Goldman Sachs, Bank of America, Morgan Stanley, BMO, Deutsche Bank, RBC, Barclays and {0|Wells Fargo}} all expect the to be between 6500-7000 by the end of 2025.

But, this next chart may put these linear expectations into better context.

Nasdaq Futures-Daily Chart

It should remind you that when the trend is strongest, that is when everyone, including Wall Street analysts, are certain that it will only continue in the same direction. As you can see from the chart, the consensus was quite strong that the market was going to continue to drop in October of 2022.

But, I will also note that it was exactly at that time that I told the members of my services to expect a major market bottom around 3500SPX, with an initial price target of 4300SPX. As we now know, that is exactly what occurred, while most analysts were still looking much lower.

You see, history explains to us that the great majority of investors engage in herding behavior. In fact, the Wall Street analysts do as well. And the stronger the prevailing trend, the more pervasive the certainty that it will continue.

Allow me to quote some statistics from Daniel Crosby’s The Behavior Investor which will outline the accuracy of these “analysts:”

“[C]ontrarian investor David Dreman found that most (59%) of Wall Street consensus forecasts miss their targets by gaps so large as to make the results unusable – either undershooting or overshooting the actual number by more than 15%. Further analysis by Dreman found that from 1973-1993, the nearly 80,000 estimates he looked at had a mere 1 in 170 chance of being within 5% of the actual number.

James Montier sheds some light on the difficulty of forecasting in his “Little Book of Behavioral Investing.” In 2000, the average target price of stocks was 37% above market price and they ended up 16%. In 2008, the average forecast was a 28% increase and the market fell 40%. Between 2000 and 2008, analysts failed to even get the direction right in four out of the nine years.

Finally, Michael Sandretto of Harvard and Sudhir Milkrishnamurthi of MIT looked at the one-year forecasts of 1000 companies covered most widely by analysts. They found that analysts were consistently inconsistent, missing the market by an annual rate of 31.3% on average.”

In 1996, Robert Olson published a study in the Financial Analysts Journal in which he studied the effects of herding upon “expert” fundamental analysts’ predictions of corporate earnings. After studying 4000 corporate earnings estimates, he arrived at the following conclusion:

“Experts’ earnings predictions exhibit positive bias and disappointing accuracy. These shortcomings are usually attributed to some combination of incomplete knowledge, incompetence, and/or misrepresentation.”

So, before you begin to give any weight to the fact that Wall Street analysts are all very bullish for 2025 or to believe that 2025 will continue along the same path as 2023 and 2024, I think you should consider how often they are wrong.



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