Summary
- Sentiment has shifted bullish, with analysts predicting higher S&P500 targets. Extreme long positions and buyer exhaustion signals suggest caution.
- Economic growth is modest at 2.1%, with earnings growth driven by lower taxes and margins, but high valuations limit upside potential.
- Technical analysis indicates a likely correction with a target of 5100 in H1 2025.
- Overall, 2025 may see the largest decline since 2022, with potential for a significant downturn if bearish trends develop further.
This article looks at 3 key areas driving prices in the S&P500 (SPY) in 2025 and uses the evidence to formulate an outlook for the first half of the year.
Sentiment and Positioning
The SPY closed 2024 at 5,881 with a 23.3% gain, higher than most expected. At the beginning of the year, many analysts forecasted a decline for the S&P500, and none expected 6000 to be exceeded. Here are a few highlights of Wall Street EOY targets for 2024:
JPMorgan (JPM) 4,200
Morgan Stanley (MS) 4,500
Wells Fargo (WFC) 4,625
Citi (C), Goldman Sachs (GS) 5,100
Yardeni 5,400
Capital Economics 5,500
Sentiment has clearly changed this year and the predictions are more bullish. The average of 23 analyst estimates is 6,539, while 4 analysts expect 7,000 or more. Only 1 firm expects the S&P500 to close lower.
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