BofA Global Research Expects 2025 to be a Year of Further Equity Market Strength Amid Macro Uncertainty

Rhea-AI Summary

BofA Global Research forecasts strong market performance for 2025, projecting the S&P 500 to reach 6666 by year-end with over 10% upward potential and 13% earnings growth acceleration. The US economy is expected to outperform with 2.4% GDP growth in 2025, supported by improved productivity. The Federal Reserve is anticipated to cut rates twice (March and June) by 25 basis points each. US 10-year Treasury yields are expected to trade between 4-4.5%. While Chinese growth may slow to 4.5%, domestic stimulus measures should offset tariff impacts. European markets are predicted to experience a mid-year decline before recovering to current levels.

Positive

• S&P 500 projected to reach 6666 by year-end 2025
• Expected earnings growth acceleration to 13% in 2025
• US GDP growth forecast at 2.4% for 2025, above consensus
• Strong positive total returns expected for credit markets
• Two anticipated Fed rate cuts in 2025

Negative

• Increased policy uncertainty affecting market outlook
• Expected weakening in commodity demand growth
• Projected Chinese GDP growth deceleration to 4.5%
• European markets forecasted to see 7% downside through mid-year
• Emerging Markets facing short-term risks

Insights

Market Research Analyst

BofA's ambitious S&P 500 target of 6666 for 2025 reflects strong confidence in US market dominance, supported by projected 13% earnings growth and 2.4% GDP expansion. The forecast suggests a significant 10%+ upside from current levels, driven by improved productivity and cyclical sector strength.

Key catalysts include two expected Fed rate cuts in March and June, tight 10-year Treasury trading range of 4-4.5% and robust credit market performance. The dollar's projected strength in H1 2025 followed by depreciation could create strategic entry points for international investments, particularly in emerging markets.

Notable headwinds include policy uncertainty and potential trade tensions with China, though domestic stimulus measures are expected to maintain Chinese growth at 4.5%. European markets face near-term pressure but should recover to current levels by year-end.

Financial Analyst

The forecast presents a compelling case for US market leadership in 2025, with cyclicals positioned to outperform. The productivity-driven growth narrative, combined with potential policy tailwinds from a Republican sweep, creates a favorable environment for equity investors. However, the ambitious S&P target implies significant multiple expansion amid macro uncertainties.

The commodities outlook suggests potential margin benefits for companies, with softening oil prices and oversupplied grain markets. Gold's projected peak at $3,000 per ounce indicates expectations of persistent macro uncertainties. The credit market's continued strength provides a supportive backdrop for corporate financing, though the scope of Fed cuts might constrain monetary policy support.

BofA Economists and Strategists Forecast the US Economy to Continue to Outperform and the S&P 500 to Reach 6666 by Year-end

NEW YORK, Dec. 3, 2024 /PRNewswire/ -- While we await key details on policy changes in the US, indications thus far suggest the outlook for 2025 could present big opportunities for investors. The US economy is on strong footing, with growing signs of a pickup in productivity growth as we head into the new year. In their newly released outlook for 2025, BofA Global Research economists and strategists expect US economic and earnings growth to outpace that of other developed economies, while US equities should start the year off strong and end 2025 with the S&P 500 at 6666. Policy changes, including tariffs, tax policy, and the regulatory environment, should have almost as much impact on the rest of the world as they will for the US. As the year progresses, international opportunities should present themselves: European stocks are forecasted to slow but rebound to current levels by year-end 2025, and in China, domestic stimulus measures should offset any slowdown brought on by changes to trade policies.

"In 2024, growth surprised to the upside and inflation moved in the right direction, allowing central banks to start easing, risk assets to perform well, and global equities to reach new highs," said Candace Browning, head of BofA Global Research. "But as we head into 2025, policy uncertainty has increased substantially. Many of the expected policy shifts should be positive for US equities, but a lot depends on their timing and how the rest of the world responds."

Key macro calls made for the markets and economy in the year ahead are:

1. Further upside for the S&P and it could come quickly: Head of US Equity Strategy Savita Subramanian expects more than 10% upward potential for the S&P and earnings growth to accelerate to 13% in 2025.
2. Improved US productivity should help economic growth, but policy changes should play a critical role for US and rest of world: Senior US economist Aditya Bhave estimates US GDP growth to come in at 2.4% year-over-year (yoy) in 2025 and 2.1% yoy in 2026, which is above consensus partly due to improved productivity. A new mix of fiscal policies may be more supportive of US economic growth vs the rest of the world.
3. Fed expected to cut twice before pausing; US bond yields should remain in a tight range: In 2025, Bhave and team expect the Federal Reserve to cut interest rates by 25 basis points at its March and June meetings and then pause. Mark Cabana, head of US Rates Strategy, expects a relatively tight trading range for the US 10-year Treasury yield, around 4-4.5%.
4. Key commodity prices, including oil, expected to soften: Francisco Blanch, head of Commodities and Derivatives Research, expects commodity demand growth to weaken, particularly on raw materials. Macro fundamentals suggest markets in 2025 will be oversupplied for oil and grains but more finely balanced for metals. After facing headwinds early in the year, gold should peak at $3,000 per ounce.
5. USD strength through 1H25 but then growth concerns lead to depreciation: Alex Cohen, senior FX strategist, expects the US Dollar to remain strong into the first half of 2025, around which time upside drivers should wane amid a less certain policy and growth outlook.
6. Emerging Markets assets face a short-term risk, then likely improvement: Head of Global Emerging Markets Fixed Income Strategy David Hauner says that uncertainty about US policy is likely to send emerging markets lower, but investors may find a buying opportunity once there is more clarity on trade policy, especially if the US dollar peaks.
7. US Cyclicals should outperform: Subramanian expects cyclical strength in 2025 for a variety of reasons, including the Republican sweep, productivity cycle, decades of underspending in manufacturing and light positioning in cyclicals.
8. Demand for credit remains exceptionally strong: Our Credit Research team expects strong positive total returns for credit in developed markets next year, the third year in a row of strong performance.
9. Expect Chinese growth to weaken but easing to offset tariff impact: Helen Qiao, greater chief China economist and head of Asia Economics, expects real GDP growth for China to decelerate to 4.5% yoy in 2025 and domestic demand stimulus to offset any impact from tariffs with a lag.
10. Euro area equity market to see downside through mid-year, then a recovery. Sebastian Raedler, head of European Equity Strategy, expects 7% downside to the Stoxx 600 followed by a recovery close to current levels.

BofA Global Research

The BofA Global Research franchise covers approximately 3,500 stocks and 1,250 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named No. 2 Global Research Firm of 2023 by Institutional Investor magazine; No. 1 in the 2024 Institutional Investor Developed Europe survey; No. 1 in the 2024 Emerging Europe, Middle East & Africa survey; No. 2 in the 2024 Institutional Investor All-America survey; and No. 2 in the 2023 Institutional Investor Global Fixed-Income Research survey. For more information about any awards cited, visit https://rsch.baml.com/awards. 

Bank of America

Bank of America is one of the world's leading financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 69 million consumer and small business clients with approximately 3,700 retail financial centers, approximately 15,000 ATMs (automated teller machines) and award-winning digital banking with approximately 58 million verified digital users. Bank of America is a global leader in wealth management, corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business households through a suite of innovative, easy-to-use online products and services. The company serves clients through operations across the United States, its territories and more than 35 countries. Bank of America Corporation stock is listed on the New York Stock Exchange (NYSE: BAC).

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Reporters may contact:

Melissa Anchan, Bank of America    
Phone: 1.646.532.9241
melissa.anchan@bofa.com 

 

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SOURCE Bank of America Corporation

FAQ

What is BofA's S&P 500 target for 2025?

BofA Global Research forecasts the S&P 500 to reach 6666 by year-end 2025, with more than 10% upward potential.

What are BofA's interest rate predictions for 2025?

BofA expects the Federal Reserve to cut rates twice in 2025, with 25 basis point cuts in March and June before pausing.

What is BofA's US GDP growth forecast for 2025?

BofA forecasts US GDP growth at 2.4% year-over-year in 2025, above consensus expectations.

What is BofA's prediction for gold prices in 2025?

After facing early-year headwinds, BofA expects gold to peak at $3,000 per ounce in 2025.