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Stifel and BCA Research predict a down year for the S&P 500 in 2025.
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Stifel cites extreme valuations and a slowing economy as reasons for a market correction.
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BCA Research warns of fading pandemic-era benefits and recession risks.
Wall Street’s 2025 stock market outlooks are out, the mood is overwhelmingly bullish.
With many firms pivoting from prior bear calls and turning optimistic after this year’s rally, there are now just two firms that expect the S&P 500 to have a down year in 2025.
The first is Stifel, which expects a 10%-15% correction in the stock market next year, with the S&P 500 index ending in the “mid 5,000s,” Meanwhile, BCA Research expects a 27% decline to 4,450.
That’s in stark contrast to the rest of Wall Street. The average 2025 year-end price target for the S&P 500 is 6,539, representing potential upside of about 8% from current levels.
Here’s what the two last bears on Wall Street are worried about for the stock market heading into 2025.
According to Barry Bannister, chief equity strategist at Stifel, stock market valuations are at extremes, as is the outperformance of growth stocks relative to value stocks.
“The S&P 500 has had 4 prior P/E ratio over-valuation ‘manias’ above the 150Y [year] trendline — and 2024 is the 5th mania,” Bannister said in the firm’s outlook published on Thursday.
Bannister said the extended valuation of the S&P 500 suggests an imminent correction of 10%-15%. Such a decline would send the S&P 500 to the low-to-mid 5,000s level.
On top of high valuations, Bannister said the economy is set to slow, which would be a double whammy for investors.
Bannister expects US real GDP to decelerate to about 1.5% in the second half of 2025 from its recent level of about 3%. At the same time, stick inflation and slowing wage growth could hit consumption, further putting pressure on the economy next year.
Finally, Bannister said he expects the Federal Reserve to pause its interest rate cuts at its January FOMC meeting due to stubborn inflation and “zero fiscal visibility,” which should put further pressure on risk assets.
Taken together, Bannister said the expected environment in 2025 “does not appear conducive” to extending an ongoing “equity mania.”
Bannister recommends investors own defensive sectors like healthcare, utilities, and consumer staples.
BCA Research is the most bearish firm on Wall Street, according to data compiled by Bloomberg.