Investing.com -- JPMorgan (NYSE:JPM) set its 2025 price target for the S&P 500 index at 6,500, implying 8% upside potential from current levels.
The target is driven by a projected earnings growth of 10% for the index, reaching $270 in earnings per share (EPS) next year. JPMorgan cites a combination of easing monetary policy, robust AI-driven capital spending, and improving market breadth as key catalysts for the expected growth.
Smaller companies, particularly in the Russell 2000, are also projected to rebound strongly, delivering 40% earnings growth after consecutive years of decline.
According to JPMorgan’s Wednesday note, the US economy remains pivotal to this outlook.
The Wall Street firm emphasizes the "US Exceptionalism" theme, with the country expected to maintain its role as a “global growth engine.”
“The US exceptionalism story could face turbulence and heightened volatility on the back of policy changes in 2025, but opportunities are likely to outweigh risks,” strategists led by Dubravko Lakos-Bujas said in the note.
“The benefit of deregulation and a more business-friendly environment are likely underestimated along with potential for unlocking productivity gains and capital deployment,” they added.
The ongoing AI investment surge, with tech giants leading significant expenditure, is also expected to bolster earnings across sectors.
Moreover, JPMorgan highlights the Federal Reserve’s recent policy shift. It expects the central bank to cut interest rates by an additional 100 basis points (bps) in 2025, bringing them to 3.75%.
“Further easing in borrow rates should help broaden the earnings recovery within S&P 500 and across the size spectrum,” strategists wrote.
A lower rate environment is also anticipated to spur credit growth and liquidity, supporting both corporate profitability and market valuations. This, coupled with deregulation and potential corporate tax adjustments under the new administration could unlock productivity and stimulate small- and mid-cap performance.
JPMorgan strategists anticipate that the current divergence in regional equity performance will persist into 2025, with US equities remaining the favored choice over Eurozone and Emerging Markets. They note that a potential convergence trade could emerge later in the year, driven by extreme differences in valuations and regional positioning.
However, Lakos-Bujas and his team stress that greater clarity on global trade and geopolitical developments is necessary before this scenario materializes. For now, "lack of a quality substitute to US equities remains the reality," they said.