S&P 500 Predictions for 2025

Investing.com – According to BCA Research, the S&P 500 is more likely to drop below 5500 or rise above 7100 than remain within the consensus forecast range for 2025.

BCA believes the current forecast range for the equity index is "too narrow." The range of predictions for 2025 among sell-side strategists clusters around an average 10% total return, assuming the index ends 2024 at 6040. However, BCA stresses that average outcomes in equity markets are rare.

> “Only in about four out of 10 years have returns been within the range that all sell-side firms are projecting for next year,” said strategist Juan Correa in a note.
> “While most strategists are predicting an average year for the S&P 500, average returns do not happen often.”

This conclusion is supported by historical data. Since 1926, S&P 500 returns have often deviated from the “average” range. Excluding outliers, the probability of returns falling within the consensus drops to only 17%.

BCA adds, “Almost all the major sell-side firms are herding around a range that has occurred in less than 1 out of 5 years.”

BCA also highlights that annual earnings per share (EPS) growth forecasts for 2025, ranging between 4% and 19%, fail to capture the historical volatility of earnings. Compared to the actual distribution of EPS growth since 1926, the current forecasts only account for roughly 40% of realized outcomes. Similar narrow expectations apply to changes in valuation multiples, which historically have been much broader.

Correa comments on the tendency for strategists to converge on moderate targets, noting that this approach may seem prudent for managing risk, but often arises from a “safety in numbers” mindset.

> “The industry is particularly punishing when you get something wrong that others did not. It is much safer to be somewhat wrong with others than to be clearly wrong by yourself,” he said.

Ultimately, BCA contends that extreme outcomes are far more probable in the upcoming year. “We believe that most S&P 500 targets for 2025 will probably be way off. As a result, our negative view will either be spectacularly right or spectacularly wrong,” concludes the report.