Bank of America analysts shared a positive outlook for stocks in 2025 during Monday’s conference call on the economic and market forecast.
According to the bank, the S&P 500 Index—as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY)—will climb to 6,666 by the end of 2025, marking a 10% increase from current levels. The forecast underscores confidence in productivity gains, resilient corporate earnings, and strategic sector rotation.
16 Years Of S&P 500: From 666 To 6,666
"We are expecting another good year for equities," said Savita Subramanian, head of U.S. equity strategy at Bank of America. "Our forecast is basically a move from 666 in 2009 to 6,666 in 2025."
This translates to an annualized return of approximately 10%, driven by robust earnings growth and broader participation across sectors.
The equity outlook for 2025 leans heavily on a projected 13% corporate earnings growth.
"Although we do believe that 2025 will be a year of rotation rather than just buy the index," Subramanian indicated, hinting at a focus on cyclical stocks as investors seek opportunities beyond mega-cap tech.
Read Also: Morgan Stanley Sounds Alarm For Markets In 2025: ‘S&P 500 Is Extremely Expensive’
Sector Rotation and Valuation Themes
Bank of America's analysis points to cyclicals, particularly financials, energy, and consumer sectors, as key outperformers in 2025.
Subramanian said that “the average stock is more attractive than the overall index,” citing the sharp gap between equal-weighted and cap-weighted S&P 500 valuations.
Analysts at Bank of America highlighted opportunities in large-cap value stocks – as broadly tracked by the Vanguard S&P 500 Value ETF (NYSE:VOOV) – which they view as well-positioned to weather inflation and interest rate uncertainties.
“The key risk under Trump 2.0 is the potential for higher inflation and higher long term interest rates. Our favorite cohort of the S&P 500 is large cap value,” Subramanian said.
Small caps are expected to outperform large-cap counterparts during the first year of Donald Trump‘s second term.
“We think the narrative on small caps as the biggest potential outperform,” analyst Jill Carey Hall said.
However, she indicated that if tariffs and immigration policies are enacted as proposed, especially with a front-loaded approach, they could pose a significantly greater risk to small-cap stocks.
“Recently proposed tariffs on Canada and Mexico could be a 7% hit to Russell earnings,” the analyst added.
Productivity and Economic Growth
Economist Aditya Bhave continues to predict a strong U.S. economy, with productivity gains driving GDP growth to around 2% in 2025.
"Productivity has accelerated," Bhave said. "We're now on a faster trend growth rate since the start of the pandemic than we were in the previous cycle."
While inflation is moderating, Bank of America warned of persistent risks. "We expect a few tenths extra inflation from tariffs and underlying inflation even setting aside policy changes as being a little bit sticky," Bhave stated.
Fed Policy And Risks
The Federal Reserve is expected to cut rates three times in 2025, bringing the terminal rate to 3.75-4%, according to Bank of America.
However, Bhave cautioned about uncertainties tied to inflation and trade policy, particularly the potential impact of tariffs.
"Tariffs could add a few tenths to inflation, particularly against China, though FX could offset some of the impact," Bhave said.
Read Next:
Photo: Shutterstock
