State Street's 2025 Bull Market Projection Following Soft Landing
New York, Tuesday, 10 December 2024.
State Street predicts a bull market in 2025 following an economic soft landing, suggesting significant investment opportunities amid anticipated economic growth and favorable conditions.
Historic Soft Landing Achievement
State Street Global Advisors has identified what could become the fourth successful soft landing in U.S. economic history [1]. The firm’s analysis shows remarkable market performance, with the S&P 500 ETF Trust (SPY) already achieving a 29% gain in 2024 [1]. This achievement is particularly noteworthy as ETFs have crossed a significant milestone, recording over $1 trillion in inflows for the first time [1].
Federal Reserve’s Pivotal Role
The Federal Reserve is expected to implement significant monetary policy changes, with projections indicating interest rate cuts from the current 4.5-4.75% range [1][2]. According to State Street’s analysis, rates could decrease by 0.75% to 1% throughout 2025 [1]. The immediate outlook includes an anticipated 0.25% rate cut next week, followed by two additional reductions over the following six months [2]. As Brian Therien notes, ‘Lower interest rates would reduce borrowing costs for consumers and businesses, which is supportive of continued economic growth and the soft-landing narrative’ [2].
Growth Projections and Market Opportunities
State Street’s outlook for 2025 is particularly optimistic, with S&P 500 earnings projected to grow by 15% [1]. This projection is supported by strong employment data, with 2.1 million jobs added over the past twelve months, while core PCE has declined to 2.8% [1]. Citigroup has aligned with this positive outlook, setting a base case target of 6,500 for the S&P 500 in 2025, with a potential bull case scenario reaching 6,900 [4].
Investment Strategy Recommendations
State Street identifies several key investment opportunities, particularly in U.S. small caps and regional banks, noting that small caps are currently trading below their 20-year average [1]. To manage anticipated market volatility, the firm recommends portfolio diversification through commodities and gold [1]. This strategy is particularly relevant given the historical pattern of increased market volatility following soft landings, as demonstrated in the post-1995 period [1].