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2025 U.S. Equity Outlook: Scott Glasser Of ClearBridge Discusses Opportunities and Risks for the Year Ahead

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2025 U.S. Equity Outlook
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As 2024 comes to a close, the outlook for U.S. equities in 2025 reflects both optimism and caution. The S&P 500 has demonstrated remarkable strength, advancing by 28% year-to-date through November, marking one of the best performances in recent history. While the 2024 rally has been outstanding, strategists are tempering their expectations for the upcoming year, anticipating a more measured approach to returns.

Market Projections for 2025

General Expectations:

Analysts are projecting an average increase of approximately 10% for the S&P 500 in 2025, with estimates ranging from 5% to 15%. After two years of exceptional gains, many experts foresee a return to more typical market behavior. However, the positive momentum from 2024 could carry forward, albeit at a slower pace.

Valuation Concerns:

Despite elevated valuations, many believe this doesn’t necessarily signal a poor return environment. Future price appreciation is expected to depend more on earnings growth than on further valuation expansion. While the market’s high valuation levels are noteworthy, it is not viewed as being in a bubble, and fundamentals remain strong.

Earnings Growth:

Earnings growth is expected to be robust, with forecasts suggesting an increase of approximately 13% in 2025. This outlook is supported by solid fundamentals and declining inflation, which could further enhance corporate profitability.

Economic Indicators:

The U.S. economy is anticipated to grow at about 2.4% year-over-year in 2025, driven by productivity improvements and favorable economic policies. However, uncertainties surrounding potential policy shifts and global economic conditions could add volatility to the market.

Key Insights from Major Firms

  • BofA Global Research predicts that the S&P 500 could reach 6666 by the end of 2025, citing strong economic fundamentals and potential policy changes that may favor U.S. equities.
  • Charles Schwab notes that while the market is healthy, volatility may increase compared to 2024, advising investors to prepare for fluctuations rather than consistent upward trends.
  • UBS anticipates continued gains driven by solid economic growth and advancements in sectors like AI, which could be a major growth driver.

Risks and Considerations

While the outlook for 2025 is largely positive, several risks remain that investors should consider:

Policy Uncertainty:

Changes in tariffs, tax policies, and regulatory environments could significantly impact market dynamics.

Potential Corrections:

Some analysts warn of a possible correction or bear market in early 2025 due to high valuations and slowing consumer momentum.

Global Economic Pressures:

External factors such as trade tensions and economic slowdowns in other regions may affect U.S. market performance.

Scott Glasser, Chief Investment Officer, ClearBridge Investments shares his perspective on the market outlook for 2025:

“The S&P 500’s advance of 28% year to date (through November) is the second strongest 11-month start to a calendar year since 1997 and one of the best of all time. With a trailing 12-month return of 34% – the 95th percentile of one-year rolling returns since 1989 – it’s hard to describe this run as anything but spectacular.

With Donald Trump expected to bring a potentially lower tax and lighter regulatory touch to his presidential second term, the market expects a rise in productivity and unleashing of capital investment over the next several years. In our view, the initial impacts of Trump’s victory are likely to be directionally consistent with 2016, favoring value, small capitalization and cyclical stocks, albeit to a lesser degree given a more mature economic backdrop and current lofty valuations.

Nonetheless, liquidity – the primary driver of bull and bear markets, in our opinion – continues to be plentiful with credit spreads near all-time lows, capital markets funding wide open (corporate high yield issuance is +44% year to date through October) and the yield curve positively sloped for the first time in two years. Therefore, although near-term ebullient sentiment could create some volatility, the markets’ long-term outlook remains healthy.