Wall Street analysts are painting optimistic pictures for the U.S. stock market heading into 2025, with the S&P 500 index — as tracked by the SPDR S&P 500 ETF Trust SPY — expected to climb to 6,500 points by year’s end, according to both Goldman Sachs and Morgan Stanley.

That projection represents an 11% gain from current levels and places the return in the 46th percentile of 12-month S&P 500 returns since 1980.

Yet, while both firms share optimism about the market’s trajectory, their outlooks show notable differences in the rationale behind the call.

In a note shared to clients on Monday, Goldman Sachs equity analyst David J. Kostin said the bullish forecast hinges on continued economic expansion and a robust corporate earnings outlook.

The analyst expects “continued U.S. economic expansion, earnings growth of 11% in 2025 and 7% in 2026.”

Economic and fiscal policies are likely to have a significant impact on corporate performance. Kostin’s team assumes that the Trump administration will implement targeted tariffs on imported automobiles and select imports from China, alongside a 15% corporate tax rate for domestic manufacturers.

Michael Wilson, chief investment officer and strategist at Morgan Stanley, echoed Goldman Sachs’ optimism.

“We raise our base case 12-month price target to 6,500,” Wilson said in his latest research note, adding that a post-election rise in “corporate animal spirits” could catalyze balanced earnings growth across sectors.

In the base case, Morgan Stanley expects the S&P 500’s valuation multiple to hold steady despite its historically elevated level. “It’s rare to see significant multiple compression in periods of above-average earnings growth and accommodative monetary policy,” Wilson explained.

Wilson also laid out a wider range of scenarios for 2025, reflecting potential economic and policy volatility.

His bull case sees the S&P 500 reaching 7,400, while his bear case forecasts a steep drop to 4,600.

“Our prior bull case narrative has been playing out as macro data has improved alongside accommodative policy,” Wilson wrote.

Both analysts noted the recent U.S. presidential election could have profound market implications.

Kostin’s team anticipates regulatory rollbacks and a business-friendly tax environment, while Wilson highlighted the potential creation of a new Department of Government Efficiency (DOGE) as a key wildcard.

The proposed DOGE could shift fiscal policy by consolidating deficits and cutting federal spending. “In short, we are potentially going through another sea change in policy outcomes that could have both short- and longer-term implications for markets,” Wilson wrote.

The “Magnificent 7” tech giants — Microsoft Corp. MSFT, Apple Inc. AAPL, NVIDIA Corp. NVDA, Alphabet Inc. GOOG GOOGL, Amazon.com Inc. AMZN, Meta Platforms Inc. META and Tesla, Inc. TSLA — have dominated the market narrative for the past two years, delivering a jaw-dropping 148% return since the end of 2022. For context, the other 493 stocks in the S&P 500 gained just 35% in the same period.

“The seven companies in aggregate accounted for more than half of the S&P 500’s 57% rise over the past two years,” Kostin said. However, their dominance has begun to wane.

In 2023, the Magnificent 7 outperformed the rest of the index by 63 percentage points. In 2024, that gap has narrowed to just 22 points, with the Magnificent 7 rising 41% year-to-date versus an 18% gain for the remaining stocks.

For 2025, Kostin predicts that the Magnificent 7 will continue to outperform, but the margin will shrink even further.

“We expect in 2025 the Magnificent 7 stocks collectively will outperform the S&P 493, but by roughly seven percentage points, the slimmest margin in seven years,” he said.

Both Kostin and Wilson are urging investors to look beyond the Magnificent 7 and explore mid-cap and cyclical opportunities.

“We recommend investors benchmark the Magnificent 7 and seek opportunities in mid-cap equities,” Kostin said, pointing to the S&P 400 MidCap Index, which trades at a lower 16x forward P/E multiple and has historically outperformed large- and small-cap stocks.

Sector-wise Kostin is also particularly bullish on Materials, Software & Services, and Utilities.

Wilson also highlighted cyclicals, noting that lighter regulation and renewed optimism post-election could drive growth in this group. “In our view, the outcome of the U.S. election raises the likelihood of a lighter regulatory environment and a potential rebound in animal spirits, which should further benefit this group,” Wilson said.

Both analysts also highlighted the potential for a revival in merger and acquisition activity in 2025.

“CEO confidence is a key variable affecting executives’ inclination to engage in M&A activity,” Kosting said. Federal regulators’ antitrust policies over the past four years have created headwinds for dealmaking, but an expected reduction in regulatory uncertainty could reignite activity.

“We continue to expect a major, multiyear rebound in activity, aided by record-high stock market levels, an economic soft landing, lower interest rates, open capital markets, greater corporate confidence, and growing pressure on private asset managers to both deploy funds and harvest investments,” Wilson said.

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