Investing.com -- HSBC analysts are optimistic about U.S. equities in 2025, projecting a 10% rise in the S&P 500, reaching 6,700 by year-end.
"The S&P 500 is up 27% in 2024, and we expect another 10% rise in the coming year based on our year-end 2025 target of 6,700," the bank said in a note on Friday.
Their forecast is underpinned by steady earnings growth, a resilient economy, and gradual Federal Reserve rate cuts.
Following a strong 27% rally in 2024, HSBC expects earnings to grow 9% in 2025.
This growth will likely stem from "a slower but still resilient U.S. economy and some margin expansion."
The bank adds: "While this year's equity rally was a mix of both earnings growth and a valuation re-rating (c50/50), we expect next year's equity returns to be focused on earnings growth as valuations are more stretched."
The bank explains that valuations, now at a forward P/E of 22.4x, are expected to hold steady, supported by strong return on equity and profit margins.
HSBC notes that 2024's equity surge was driven by a "goldilocks" macro environment.
"We expect valuations to remain elevated on solid profitability of U.S. corporates but see limited scope for further re-rating. Materialization of AI-related cost cutting initiatives though could pose upside to valuation," HSBC wrote.
Key risks for 2025 are said to include policy changes, inflation behavior, and elevated valuations.
HSBC highlights that "announcements on tariffs, taxes, regulation, and immigration policy" could introduce market volatility, but they won't necessarily dictate the overall trend.
While further rate cuts from the Federal Reserve would benefit equities if driven by easing inflation, HSBC says a re-acceleration of inflation could pose significant challenges.
HSBC's outlook reflects confidence in the U.S. market's profitability and resilience, with the potential for continued robust performance in 2025.