The US manufacturing sector is poised for a significant rebound in 2025, potentially fueling growth in the S&P 500, according to Bank of America. This resurgence could have substantial implications for investors, as a significant portion of S&P 500 earnings is derived from the manufacturing sector. Early indicators suggest that manufacturing activity could expand as soon as April of this year.
The Biden administration has made major investments in the Arizona subsidiary of the Taiwan Semiconductor Manufacturing Company.
Bank of America Securities strategist Ohsung Kwon, in a recent CNBC interview, expressed a bullish outlook for US equities, citing the potential revitalization of the manufacturing sector as a key driver. This positive projection comes after a period of contraction in manufacturing activity throughout 2024 and much of the preceding two years, as reported by the Institute for Supply Management.
Kwon emphasized the strong correlation between manufacturing performance and S&P 500 earnings, stating that “half of earnings for the S&P 500 is tied to the manufacturing cycle.” He highlighted the historical significance of the current downturn, referring to it as “the longest downturn in history for manufacturing.” A resurgence in this sector could therefore significantly impact overall market performance.
A December report from Bank of America strategists predicted an expansion in the Purchasing Managers Index (PMI), a key indicator of manufacturing activity, beginning in April 2025. This forecast is based on several positive trends, including growing optimism among small businesses and a healthy backlog of orders reported by industrial companies for 2025.
Furthermore, the incoming presidential administration is anticipated to implement policies supportive of manufacturing growth. Initiatives focused on reshoring, the practice of bringing manufacturing operations back to the United States, are also expected to gain momentum in the next four years, further contributing to the sector’s recovery. This renewed focus on domestic production could significantly alter the landscape of American manufacturing.
While Kwon anticipates a broad positive impact on average stock earnings, he suggests that cyclical sectors, including financials, consumer discretionary, and materials, are likely to experience the most significant gains. This targeted growth could present unique investment opportunities within the broader market upswing.
Bank of America maintains a bullish stance on stocks overall, albeit with more moderate return expectations for 2025 compared to the previous year. The bank’s year-end target for the S&P 500 is 6,666, representing a 14% increase from current levels. This projection suggests a continued upward trajectory for the market, driven in part by the anticipated manufacturing recovery.
In conclusion, the projected resurgence of the US manufacturing sector in 2025 presents a compelling case for optimism in the stock market. The strong link between manufacturing activity and S&P 500 earnings, coupled with supportive policy initiatives and positive economic indicators, suggests a potential catalyst for significant market growth. Investors should closely monitor developments in this sector for potential investment opportunities.
