Isaac Cockfield
The CFO
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isaac.cockfield@lpl.com
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Zack started in the financial services industry in 1999 at Merrill Lynch and has worked with many of the same clients for 20 plus years. In 2003, Zack earned the Certified Financial Planner® designation and can meet over Zoom to do an intro meeting.
Expect Stocks to Go Higher in 2025, but No One-Way Street
Looking back, 2024 was another strong year for stocks. The market was driven higher by unwavering trends in technology, an enduring economy with moderating inflation, Fed rate cuts, and the prospect of investor-friendly policies from the incoming administration. As we look towards the stock market in 2025, here are some key considerations for equity investors:
- Varied upside potential: If they persist, a combination of moderating inflation, stable interest rates, and strong earnings growth supports a higher S&P 500 valuation. Our fair value target range for 2025 is 6,275 to 6,375 based on a price-to-earnings ratio of 23 and our new 2026 S&P 500 earnings per share target of $275. Importantly, this is a fair value range and stocks can trade above or below fair value for extended periods of time. Potential upside could come from lower rates, productivity gains, and confirmation of market-friendly policies from the new administration.
- Avoiding recession is key: The stock market has historically delivered single digit returns in the 12 months following an initial rate cut from the Fed, but when recession has been avoided, the median gain has been closer to 11%. LPL Research does not expect a recession in 2025, supporting stock market gains.
- Potential risks: While not the base case, a much slower-than-expected economy, coupled with a volatile interest rate policy, would be a serious headwind. Additionally, resurgent inflationary pressures in response to new policy or another increase in geopolitical tensions could also further undermine the current positive narrative for stocks.
- Don’t expect a one-way street higher: Even in non-recessionary periods, it is still commonplace for equity bull markets to undergo 10% corrections along the way. Be prepared for bouts of volatility in 2025 and favor buying equities on market pullbacks. Investor sentiment is stretched, potentially setting the stage for a dip in the coming weeks and months. Bottom line, expect equity returns to indeed be favorable in 2025, but the upside will not be as robust as 2024.
For more, find the full Outlook 2025: Pragmatic Optimism from LPL Research here!
Asset Allocation Insights for 2025
The LPL Research Strategic and Tactical Asset Allocation Committee (STAAC) remains neutral towards equities as 2025 approaches and is waiting for a dip to buy with so much good news priced in and sentiment stretched. The Committee prefers U.S. stocks over developed international and emerging markets (EM) on a regional basis, although EM is starting to look interesting as a contrarian opportunity. The domestic preference stems primarily from superior earnings and economic growth in the U.S., which is reinforced by the policy stances of incoming administration and a potentially stronger U.S. dollar. Trade policy and tariffs remain concerns for EM equities.
Finally, the STAAC continues to recommend a tilt toward growth stocks until the market starts to tell us to consider going the other way, while the Committee does not have conviction on a market cap preference currently and continues to watch for technical evidence of a potential upturn in small cap relative performance.
Important Disclosures
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
Asset Class Disclosures –
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
Bonds are subject to market and interest rate risk if sold prior to maturity.
Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.
Preferred stock dividends are paid at the discretion of the issuing company. Preferred stocks are subject to interest rate and credit risk. They may be subject to a call features.
Alternative investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.
High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
Precious metal investing involves greater fluctuation and potential for losses.
The fast price swings of commodities will result in significant volatility in an investor’s holdings.
This research material has been prepared by LPL Financial LLC.
Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Deposits or Obligations | Not Bank/Credit Union Guaranteed | May Lose Value
For Public Use – Tracking: #669077
Jeff Buchbinder
Jeff Buchbinder, CFA, provides the top-down view of the stock market for LPL Financial Research. He has over 25 years of experience in equities.
