Here are the takeaways from today’s Morning Brief. Sign up to receive the following in your inbox each morning:
Early results are in, and Wall Street strategists who have released their 2025 forecasts say they expect the S&P 500 (^GSPC) rally to continue strong over the next 12 months.
But their fundamental opinion is missing one of the most popular topics in the market over the past 18 months: artificial intelligence.
The hallmark of the market call that AI drives the market higher dates back to spring 2023, when Nvidia’s explosive first-of-the-cycle earnings report started a roaring bull market rally.
On Monday, Brian Belsky, chief investment strategist at BMO Capital Markets, set a year-end 2025 target for the S&P 500 at 6,700. Meanwhile, Morgan Stanley Chief Investment Officer Mike Wilson has set a 12-month target of 6,500.
Both men were less inclined towards the impact of AI in driving stock prices higher (perhaps a sign of a mature bull market), instead discussing the further expansion of the bull market from the tech-heavy stock markets of the past two years.
“We expect this expansion in earnings expansion to continue as the Fed lowers rates and cyclical indicators continue to improve over the next year,” Wilson said.
According to Belsky’s research, the market is already expanding, with 276 stocks outperforming the S&P 500 in the second half of 2024, which is higher than the 10-year average of 238 stocks, and in early 2023. That’s more than anything seen since.
Smaller profits from smaller companies mean smaller overall profits, which may ostensibly slow the index’s rise. Back in 1990, Belsky found that when the top 100 stocks in the S&P 500 outperformed, the index returned an average of 11.8% annually, compared to when they underperformed the index. We found that the return was 8%.
In other words, the returns aren’t bad. It’s not as great as what investors have enjoyed for the past two years.
To be clear, the idea that AI-related frenzy could continue to drive stock prices higher is not lost on Wall Street strategists. Just two weeks ago, Evercore ISI’s Julien Emanuel predicted that the S&P 500 would hit 6,600 by June 2025, and that “enthusiasm is in store” as “the public gets speculative again.” I wrote that it is.
Wilson presented a bullish case for widespread adoption of AI to boost margins and push the flagship index near 7,400.
Of course, for S&P 500 investors, that sounds like an attractive scenario. But perhaps even more appealing is that strategists no longer need to rely on AI to explain why markets will continue to rise. Even if AI doesn’t show up to the party, Wall Street expects to have a good time.
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