S&P 500 Could Hit 6500 by End of 2025, Goldman Sachs, Morgan Stanley Say

KEY TAKEAWAYS

* The S&P 500 could hit 6500 by the end of next year, according to Goldman Sachs and Morgan Stanley, boosted by the U.S. economy's growth and higher corporate earnings.

* Goldman Sachs chief equity strategist David Kostin sees continued U.S. expansion driving growth.

* Morgan Stanley's Mike Wilson sees falling interest rates and the post-election corporate euphoria lifting stocks.

The S&P 500 index could hit 6500 by the end of next year, according to Goldman Sachs (GS) and Morgan Stanley (MS), boosted by the U.S. economy's growth and higher corporate earnings.

That would represent a gain of about 10% from the index's closing level Monday of 5,893.62. The S&P 500 recently traded around 5,905, up about 0.2% Tuesday.

Goldman Sachs chief equity strategist David Kostin wrote that the Wall Street firm's forecast reflects a "12% total return with dividends" by the end of next year, "predicated on continued U.S. economic expansion, earnings growth of 11% in 2025." The index has been on a tear this year.

The  Magnificent Seven stocks will continue to gain, Goldman said, but their margin of outperformance versus the other 493 stocks in the index will be smaller. Goldman also recommended buying mergers and acquisitions (M&A) candidates under a Donald Trump administration expected to ease regulation, as well as companies that gain from "Phase 3" of the artificial intelligence (AI)evolution, like Apple (AAPL) and Snowflake (SNOW). 

Morgan Stanley Says Falling Interest Rates, 'Corporate Animal Spirits' To Drive Gains 

In its note Monday, Morgan Stanley said it had raised its base case 12-month price target for the index to 6,500, due to forecasts of higher earnings as interest rates fall and the post-election corporate euphoria. 

We expect the recent broadening in earnings growth to continue in 2025 as the Fed cuts rates into next year and business cycle indicators continue to improve," the analysts led by chief U.S. equity strategist Mike Wilson wrote. "A potential rise in corporate animal spirits post the election (as we saw following the 2016 election) could catalyze a more balanced earnings profile across the market in 2025.