BMO sets next year’s S&P 500 target at 6,700, or a 14% gain from here

Stocks still have significant gains in front of them heading into 2025, at least according to BMO Capital Markets. BMO chief investment strategist Brian Belski forecasts the S & P 500 will reach 6,700 by the end of next year, which would equal roughly 14% appreciation from current levels, matching the market’s average return since the end of the Global Financial Crisis in 2009. in a 37-page report out Monday, Belski bases his bullish call on expectations that corporate profits for the S & P 500 will equal some $275 per share in 2025, up from maybe $245 to $250 this year. “While our work is routinely labeled as being ‘permabullish,’ we will gladly accept that moniker,” Belski wrote. “After all, U.S. stocks have averaged an annual return of 14% since 2009.” The Canadian bank forecasts “stocks continuing their upward trend for years to come,” although the “nearer-term path is likely to become more challenging if history is any sort of guide,” Belski said. Although bull markets over the past 50 years have averaged about six years in length, the current bull market is just starting its third year but, unfortunately, the third year of past bull markets have been the weakest of the bunch, he cautioned. Belski’s outlook comes as stocks continue to soar, taking another leg higher in a dramatic postelection rally , climbing 23% in all of 2024 thus far, and scoring two straight years of 20%-plus returns. .SPX YTD mountain The S & P 500 is little changed on Monday, but has gained about 23% in 2024. But because stocks are still in the middle of a bull market, any downside risk is to be taken with a grain of salt in the context of broader optimism, Belksi says. He sees 2025 as a year when stocks return to some sense of “normalcy,” as he views returns in 2023 and 2024 as excessive and probably borrowing from the future. “According to our work, an environment of high single digit annual price gains coupled with at or near double digit earnings growth and price to earnings ratios in the high teens to low twenties over the next few years would be a good start on the path to normalization,” he said. Belski’s original 2024 year-end outlook for the S & P 500 of 5,100 was short of the average forecast of 5,705 surveyed at the time, although his outlook was subsequently raised to 6,100. Heading into 2024, the S & P 500 had advanced more than 24% in 2023. To be far, however, stocks overshot most of Wall Street’s expectations issued when the year began, and Belski’s view at the time still called for about a 7% runup in stocks this year versus last year’s close. Belski’s latest forecast for next year also includes his most bearish and most bullish outlooks. The latter envisions the S & P 500 ending 2025 at 5,500, or about a 6% decline from the index’s current price, mostly as a result of inflation picking up steam. He noted that this scenario would still allow the market to avoid a full-blown bear market. But his most optimistic forecast calls for the S & P 500 ending 2024 at 7,000, a gain of about 19%, driven by robust economic growth, inflation continuing a downward trajectory and the Federal Reserve continuing to cut benchmark interest rates.