Fundstrat’s head of research, Tom Lee, a prominent Wall Street bull, anticipates the S&P 500 will surge by an additional 16% to reach 7,000 by mid-2025. This bullish outlook is fueled by several key factors, including an expected Fed rate-cutting cycle, pro-business policies from the White House, and strong corporate earnings. However, Lee predicts a potential market cool-off in the latter half of 2025, with the S&P 500 ultimately closing the year at 6,600. While this represents a pullback from the mid-year high, it still signifies a roughly 9% gain from current levels, aligning with the median forecast among strategists.
Lee’s projection for a strong first half followed by a more subdued second half is rooted in historical market patterns. He observes that following five previous instances of consecutive years with 20% S&P 500 rallies, the third year has consistently exhibited a weaker second half. During a recent client call, Lee emphasized this historical trend, stating that markets typically perform better in the first half of the third year after such substantial gains.
While acknowledging the historical precedent for a second-half pullback, Lee doesn’t discount the possibility of the market continuing its upward trajectory beyond 7,000. This scenario, he suggests, could be driven by a sustained influx of capital from risk-free assets into the stock market. However, he maintains a confident outlook for the first half of 2025, expressing uncertainty about the market’s direction in the latter half.
Lee highlighted the declining correlation between individual stocks within the market, reaching 20-year lows. This environment, he argues, favors a stock-picking approach over broad market strategies. He expressed particular optimism for small-cap stocks, anticipating they could benefit from deregulation and increased merger and acquisition activity under the new Trump administration. This resurgence of “animal spirits” in the market has led to several ambitious forecasts, including Yardeni Research’s projection of a 7,000 year-end close for the S&P 500.
Beyond the stock market, Lee also foresees a significant surge in Bitcoin’s value, predicting it could reach $250,000 per coin in 2025. He attributes this potential surge to the upcoming “Bitcoin halving” cycle and anticipates a more favorable regulatory environment for cryptocurrencies under the Trump administration.
While optimistic overall, Lee identifies a potential risk to his bullish outlook: underperforming US economic growth. Factors contributing to this potential underperformance could include effective government spending limitations implemented by Elon Musk’s “Department of Government Efficiency” and the impact of the Trump administration’s proposed tariffs, both potentially weighing on GDP.
