- The market outlook for 2025 sees U.S. GDP growing at a healthy rate, the stock market gains diversifying beyond the Magnificent Seven—with health care a likely winner—and an evolution in the AI sector that powered virtually all of last year’s rally.
Investors are eyeing 2025 with an eager optimism, hoping the markets will continue their strong performance from 2024.
The economy is on solid footing as inflation continues to come down and the labor market is stable enough to keep the Fed satisfied. The stock market finished another gangbusters year, up 24%. It doesn’t hurt that the business community got their candidate of choice in the November election. President-elect Donald Trump pledged to cut taxes and regulations, two campaign promises that are always welcome news to investors.
As 2025 begins, Coins2Day compiled a list of major market and economic predictions for the year ahead:
The U.S. Economy will continue to grow
The economic growth that characterized the U.S. Economy in 2024 is expected to continue, although not quite at the same levels. Goldman Sachs forecasts a 2.5% increase in the U.S. GDP compared to its 2.8% growth in 2024. Despite that slight dip, the healthy 2.5% clip would indicate the widespread recession fears of 2022 and 2023 have mostly been abated. Instead, the markets expect a growing economy that should keep investors feeling satisfied. Those positive feelings will also extend to consumers, the backbone of the U.S. Economy, according to Goldman. As inflation keeps coming down, consumers should start to see lower prices and, perhaps more importantly, start to feel better about their finances. “Consumer spending should remain the core pillar of strong growth, supported both by rising real income driven by a solid labor market and by an extra boost from wealth effects,” Goldman Sachs chief economist Jan Hatzius wrote in November.
…And so will the stock market
The S&P 500 will finish with gains north of 20% for consecutive years for the first time since 1998. So it makes sense that the tale of the stock market in 2025 will be similar to that of the overall economy: slightly worse than the year before, but still growing strong. For investors, that represents a rosy picture for the coming year. Fears of a recession or an unsustainably top-heavy S&P 500 seem to be in the rearview mirror. JPMorgan estimates a roughly 10% increase in the S&P 500 for 2025, according to an analyst forecast. While not an especially bullish projection, it comes as a change of heart from the banking giant, which earlier in 2024 had expected the stock market to struggle in 2025. Morgan Stanley also expected a similar increase in the S&P 500, although its bull scenario saw the index rise up to 7,400, which would mean about a 25% increase from current levels, according to a November report.
Stock market growth in 2025 will extend beyond the Magnificent Seven
For the past two years, the group of megacap tech stocks dubbed the Magnificent Seven powered U.S. Equities to their historic performances. They delivered record returns. For the average investor, that was welcome news. However, those select few companies represented 50% of the total gains across the S&P 500 as of October, a worrying trend that some feared was indicative of deeper, underlying problems with U.S. Markets. In 2025, those fears may be assuaged by the fact that Wall Street expects a variety of sectors to deliver returns. Goldman Sachs recommends overweighting defensive sectors in 2025 because “of the level of growth optimism already priced into the equity market today,” the bank wrote in an analyst note. For 2025, the bank is eyeing the materials, software, health care, utilities, and real estate sectors, predicting those would be the most likely to exceed the S&P 500 by at least five percentage points.
As market gains diversify, analysts are keeping close tabs on the health care sector in 2025, which underperformed compared to the broader market in 2024. Goldman Sachs sees the sector trading at “historically low valuations,” which make it an appetizing investment. The sector is poised to grow in the coming year because it stands to benefit more than others from the technological advancements of artificial intelligence, which can speed up drug discovery and reduce labor costs, according to JPMorgan.
AI isn’t going anywhere in 2025, either
If the rise of artificial intelligence characterized the stock market surges of 2023 and 2024, then 2025 will be the year the technology sticks around for good.
That’s not to say the market will look exactly as it did over the last two years, when much of the gains were concentrated in cloud computing and chip manufacturing. (Though those stocks certainly won’t falter, as evidenced by Broadcom becoming the latest trillion-dollar company.) Expect the market to shift toward companies that supply the AI industry with the power they need to develop and train their new models, according to analysts from Bernstein Private Wealth Management.
Big Tech players like Alphabet, Microsoft, and Meta have all said they plan to increase their capital expenditures on AI by billions of dollars in 2025. Much of that spending will go toward building the infrastructure needed to keep developing AI. It could be several years before those investments translate into top- and bottom-line growth. Instead, the Street expects the companies building the data centers to be major beneficiaries.
“Investment portfolios would likely benefit from exposure to the infrastructure beneficiaries of generative AI—e.g. Electricity production, transmission, and storage, as well as data center/server farm construction, and data transmission—where the eventual spending may take a decade or more to arrive,” the Royal Bank of Canada wrote in a December report.