Wall Street is scared to be bearish. That could mean trouble ahead.
- Wall Street strategists are predicting higher stock-market gains for 2025 than in previous years.
- Bullish sentiment is driven by AI optimism and a resilient US economy despite risks.
- But strategists may also be facing pressure not to defy the ongoing rally.
The glass is almost always half full on Wall Street. Strategists at the world’s biggest banks are regularly optimistic about what the future holds for the stock market.
This hasn’t changed for 2025. But something is different this year: top equity strategists are even more cheery than usual.
According to a Business Insider analysis of data compiled by Bloomberg, 2025 year-end price targets are substantially higher on average than at the start of the last five years.
In each December leading into 2020-2024, the average projected upside for the following year has been 4.5%. This year, Wall Street sees 11.5% returns.
Even when taking bears out of the equation, upside expectations among those who are bullish are substantially higher in 2025. From 2020-2024, bulls saw an average of 6.3% gains. Bulls project an average of 12.4% returns this year.
Meanwhile, bears have also mostly gone extinct. Marko Kolanovic, the former JPMorgan strategist, left the bank in 2024 after more than a year of bearish forecasts. The bank now projects 10% upside in 2025. Morgan Stanley’s Mike Wilson went back on his bearish outlook in both 2023 and 2024. And Piper Sandler’s Michael Kantrowitz reversed his downbeat tone in December 2023.
Just Stifel’s Barry Bannister and BCA Research’s Peter Berezin remain among those strategists with negative year-end price targets. The S&P 500 started the year at 5,903 and closed at 5,842 on Tuesday.
To be fair, the reasoning behind the bullish outlooks is strong. The narrative around how artificial intelligence will revolutionize the economy and boost profit margins is sweeping investors off their feet. The US economy has also dodged recessionary accusations time and again. Plus, stocks tend to rise over time.
But not always, and risks to the rally do abound. Yields on 10-year Treasurys are creeping up toward a worrisome 5% as inflation remains sticky and the Fed’s dovish attitude quickly fades. Stock valuations are near all-time highs. The incoming Trump administration could further reignite inflation with blanket tariffs and tax cuts. Geopolitical tensions are still on the rise as wars continue in Ukraine and Gaza, and as Trump threatens to take over Canada and Greenland once he’s back in office.
So, why does Wall Street seem less inclined, on average, to take downside risks into account?
Sure, maybe AI has changed the game. But according to market experts, other factors could be at play — factors that could be signaling a top, and that are potentially leaving investors vulnerable to unanticipated downside.
Self-preservation and good business
The S&P 500 has been on a historic run, returning 24% and 23% in 2023 and 2024, respectively. The magnitude of that rally could be one reason strategists appear reluctant to be bearish in 2025, according to Ron Temple, the chief market strategist at Lazard Asset Management, which manages $247 billion. If you’re bearish when the market is ripping, clients and management aren’t happy.
“I think for a lot of people, predicting the negative has been painful,” Temple said. “And so I think there’s probably a capitulation element there that is a risk factor that we should all be really concerned about.”
One way that pain can manifest itself for strategists is through internal pressure from management to be more bullish, some experts say.
At the heart of that pressure isn’t just the wish to be correct — it can also be about a company’s bottom line, said Randy Flowers, a portfolio manager at Waterloo Capital, which oversees just under $2 billion. Even if a bearish argument stands to reason, negative outlooks aren’t good for business.
“The higher those upside projections are for the next year’s performance, that gets clients excited, that gets more dollars in the door,” Flowers said. “It’s really hard to sell your large-cap strategy to clients when you’re a large-cap sales guy or portfolio manager when you think the S&P is going to be flat next year.”
Besides losing out on inflows, there’s also the cost of missing out on potential upside, said Ben McMillan, founder and CIO of IDX Advisors, which manages $120 million and advises another $880 million that’s managed by endowments, institutional investors, financial advisors.
“The cost of missing out has, I think, gone up in recent years,” he said. “If you’ve been postured overly defensively as an advisor or as a manager, your business can start to suffer.”
David Rosenberg, who was the chief North Amercian economist at Merrill Lynch in the years leading up to the Great Recession and the US housing bubble, says he has firsthand familiarity with how these dynamics can play out at Wall Street banks. Because he persisted with his out-of-consensus calls that the housing market would drive the economy into recession in the mid-2000s, his managers at the time took steps to hedge his language.
For example, they asked him not to use the word “bubble” anymore to describe the housing-market frenzy at the time because it was invoking too much emotion in clients, Rosenberg said. “Mania” was allowed instead, he said.
Further, he was told his bearish economic forecasts weren’t palatable for the firm’s equity research business.
“I was told at one point that if the equity analysts used my numbers on industrial production and housing starts and retail sales in the forecasts, they would have a sell recommendation on most stocks, and that would be unacceptable,” he said.
Eventually, Merrill Lynch had an independent audit conducted on Rosenberg to assess his value to the firm, he said. They ended up keeping him on board, but he left the firm in 2009.
It’s another pressure that strategists have to work under: fear of losing their jobs if price targets are bearish but market consensus is exceedingly bullish, said Bill Smead the founder of Smead Capital Management, which oversees around $7 billion. He manages the Smead Value Fund (SMVLX), which has beaten 99% of similar funds over the last 15 years, according to Morningstar data.
He recalled a few money managers who essentially lost their roles in early 2000 for not investing in technology stocks leading up to the peak of the dot-com bubble. One was Julian Robertson, who had to close his hedge-fund Tiger Capital due to investors redeeming their shares amid underperformance. Another was Robert Sanborn, who was replaced in his role managing the Oakmark Fund. And then there was George Vanderheiden, who retired from Fidelity at 54 years-old following his poor returns.
Smead said that when strategists and money managers get forced out of roles or are encouraged to change their tune, it’s a sign that the market could be close to topping out, just like it was in 2000. He said he is positioned away from mega-cap tech names in anticipation of downside ahead.
“That’s exactly what you expect to see at the top,” Smead said. “People being shamed for not capitulating to the incredible power of the financial euphoria. I mean, there’s nothing more difficult in our business than standing against financial euphoria.”