One of Wall Street’s most notorious bulls sees the rapid rally in the S&P 500 (^GSPC) adding another 16% to start 2025 before eventually cooling off to end the year.
Fundstrat head of research Tom Lee wrote in his 2025 outlook that a Fed rate-cutting cycle, White House policies that could boost corporate confidence, and earnings are among the factors that support further gains for the benchmark index next year.
But after reaching 7,000 by mid-year, Lee said historical data points to a weaker second half of the year. He eventually sees a pullback, with the S&P 500 ending 2025 at 6,600. Notably, that would still mark a roughly 9% increase from current levels. Lee’s forecast falls roughly in line with the median forecast among strategists tracked by Yahoo Finance.
Lee’s calls for solid but more muted returns next year comes after back-to-back 20% gains for the S&P 500 in 2023 and 2024. (The benchmark is up over 27% so far this year.) In the past five instances of 20% rallies in consecutive years, the second half of the third year has been negative, per Lee’s work.
“I’m not bearish about the year,” Lee said in a 2025 outlook call with clients on Wednesday.
“It makes sense to think of this as two halves of a year,” he added. “Because whenever you’ve booked 20% back-to-back gains, markets tend to do better in the first half of that third year, not in the second half.”
Lee clarified that his call for pullback is largely based on that historical pattern. And there is still a chance the market is higher than 7,000 at year-end amid an “unrelenting rise” — which, he said, would be driven by flows from risk-free areas of the market into stocks.
“I’m just saying I don’t know what happens really in the second half yet,” Lee said. “I think we’re confident about the first half.”
Lee noted that the correlation between stocks within the market is “falling to 20-year lows,” creating an environment ripe for stock picking. He said he likes areas such as small caps, which he believes could benefit from deregulation and a boost in merger and acquisition activity under the new Trump administration.
Lee’s outlook comes alongside a return in “animal spirits” coming into play. The popular call on the Street heading into 2025 has contributed to several high-flying forecasts, with Yardeni Research projecting the S&P 500 will end the year at 7,000.
Also among Lee’s top calls is bitcoin (BTC-USD) reaching $250,000 per coin in 2025 as a “bitcoin halving” cycle and “friendlier” government regulations under the Trump administration spark demand.
