Wall Street's most optimistic annual outlook: for the third consecutive year, the bull market will continue and the S&P will rise to 7,077 points next year.

With the stock market recovering some lost ground from last week's adjustment, 2024 is likely to be remembered as a comprehensive bull market, with all major indices surpassing historical highs. However, investors may remember that this year is not a typical bull market. We have not seen a significant pullback yet, although historically, such pullbacks occur at least once a year. We have also witnessed the volatility index spike to extreme levels twice - the S&P VIX index reached its second-highest level on August 5, and the VIX index also reached its second-highest level in the past two years on December 18, leading to last week's adjustment. Concerns about interest rates (restrictive), inflation, the U.S. election, economic soft/hard landing, and conflicts have been accompanying us throughout 2024. Many investors believe that the S&P 500 index has risen excessively and is currently overvalued. Their views on 2025 may be more conservative. Warren Buffett may be the best example, as he has accumulated a massive cash reserve, reaching a historic $325 billion. I am very optimistic about the market outlook for 2025. 2025 will be "Bull Year 3" Looking at the macroeconomic outlook for 2025, the bad news is that all the "unknowns" mentioned above have not been truly resolved, and the market will continue to react nervously to any news related to these factors. However, the good news is that these are becoming "known unknowns," so many considerations have been factored into or "priced in" the stock market. Despite high volatility, I believe these factors will not have a significant impact on the overall market trend. Looking at the market cycle, we are coming out of a fairly significant bear market in 2022. The S&P 500 index fell about 25% from the first day of 2022 to the market bottom in 2022 and lost about 20% by the end of 2022. 2023 was a bull market, with the S&P 500 index rising by 24%, followed by 2024, where the market recovered all losses, and more. 2024 will enter the second round of bull market, with only a few days left until the end of the year and the bull market has already risen by over 24%. With the economy staying stable and monetary policy expected to further ease, historical data shows a high probability of a bull market in 2025. The data shows that in the bull market cycles since 1949, of the 17 bull markets, 12 were bull markets in the third year after two bull market years. Fundamentally, I believe the third year of the bull market will be supported by a strong U.S. economy in 2025. According to the latest FOMC forecasts, U.S. GDP growth is expected to exceed 2% in 2025, estimated at a maximum of 2.5%, lower than the 2024 forecast (2.8%). Although this estimate seems to take into account the potential tightening of monetary policy due to a decrease in the number of rate cuts, for various reasons, I believe this is a very pessimistic forecast for 2025. Neutral rates may be slightly higher than 3%, as indicated by the latest adjustments made by the Federal Reserve, with the target range slightly rising to between 2.8% and 3.6%. This means monetary policy may not be as tight as imagined. In other words, the economy in 2025 may be in a more positive state. Perhaps, the biggest driver of the U.S. economy in 2025 will come from the magical number 3. Treasury Secretary nominee Scott Bessent has a "3-3-3" plan, with one of the 3s being a target of 3% GDP growth. Although the 3% target remains controversial, key factors for economic growth can be implemented - namely, deregulation and other growth-promoting policies (such as tax cuts) will be strong drivers of business growth. The market will dance with risks and move forward confidently This view may differ from the mainstream view on Wall Street, where the mainstream view believes that the S&P 500 index's P/E ratio (tracking) exceeding 30 means overvaluation and limited room for P/E expansion. I believe that in 2025, we will see more market upside due to P/E expansion. I see no clear evidence to suggest that P/E expansion of over 20% is unreasonable. My view is that the traditional valuation methods lack the correct evaluation of "technical" growth. Explaining in detail the method of evaluating technical growth goes beyond the scope of this article. I will simply assume that the market has already factored in the current level of growth and use this as a starting point to estimate the target for the S&P 500 index in 2025. According to FactSet.com, we expect the earnings growth rate of the S&P 500 index to be 14.8%. Considering the additional favorable factors expected in the first year of the new presidential term and the 3-3-3 plan discussed earlier, I will add another 20%. Therefore, I now estimate the growth rate of the S&P 500 index in 2025 to be around 17%, based on the current value of the S&P 500 index at the time of writing (6,049), I can roughly deduce 7077 points. The "Fabulous Seven," who make up a large part of the market value of the S&P 500 index, can easily validate a high 10% earnings growth rate. The table below shows the estimated earnings growth rates of the companies representing the "Fabulous Seven." We can see that the second line highlighted below each stock shows an average of about 20% year-over-year earnings growth rate. As for the other 493 companies in the S&P 500 index, FactSet predicts an earnings growth rate of 13%, which is not significantly lower. Similarly, I expect these companies to have a higher earnings growth rate, closer to 17%, as they are likely to benefit more from the new policies of 2025, such as deregulation, tax cuts, and Federal Reserve rate cuts. Note that the proposed revenue growth is very consistent with the results of another method discussed earlier. In this method, we use a base of 2.5% for GDP growth and add 20%. This would result in GDP growth reaching the "magical" 3% in 2025. 2025 will be a normal bull market year, just like any other regular bull market year. Driven by a strong global economyI expect the S&P 500 index to surpass 7077 points and very likely to stabilize above the psychological level of 7000 points.It is expected that the U.S. market will enter its third bull market year, with an estimated increase of around 25% in 2024 and 2023. I predict that the stock market will continue its bullish trend, helping the S&P 500 index to break 7000 points and reach 7077 points in 2025. This increase is roughly equivalent to a 17% increase and will be driven mainly by the U.S. economic growth aiming for a 3% GDP growth rate. The number 7077 is calculated based on my forecast of a 17% profit growth for the S&P 500 index in 2025. The expected growth is about 20% higher than the current profit consensus for the S&P 500 index. Finally, considering that major concerns and risks to the economy will be nearly the same as in 2024, these factors alone are not enough to change the foreseeable bullish trend and momentum of the stock market in the future, unless issues worsen in various aspects. This article was reposted from the WeChat public account "US Stock Research Society," edited by GMTEight.