Scott Wren, senior global market strategist at Wells Fargo, stated that the stock market is expected to bring strong returns to investors in 2025, but there is one sector that investors should avoid.
Wren, who had predicted an economic recession and was bearish on the stock market earlier this year, stated that he expects a bullish backdrop for the stock market in 2025 and predicts that the S&P 500 index may rise to 6600 points by the end of next year. He said in an interview with the David Lin Report on Monday that this means the index will rise 10% from current levels, mainly driven by the resilience of the U.S. economy and falling interest rates.
Wren added that inflation may bottom out in the short term, but in the coming years, it could be closer to the Federal Reserve's 2% target. He predicts that the Federal Reserve may cut interest rates by another 100 basis points, and GDP growth may remain stable at around 2.5% next year.
He said, "I think that in a situation where inflation may not be at the level the Federal Reserve wants to see, but also is not that high, investors have a good reason to increase their stock holdings and seek good returns next year."
Wren stated that this is also a good reason for investors to avoid defensive stocks.
He said, "What we are trying to do is to get more involved in cyclical sectors that are sensitive to domestic and foreign economies, and if we see a significant market pullback, we will definitely lay out more. That is, anything but defensive stocks." He added that the bank expects returns in sectors such as utilities, healthcare, and consumer staples to be relatively lackluster.
Some market commentators predict that defensive sectors such as energy and utilities will rise significantly, as these sectors are considered the main beneficiaries of the AI boom.
Wren commented, "With technologies such as data centers and artificial intelligence, utility companies will benefit to some extent, but their revenues will not be as sensitive to economic recovery in the near and mid-term, and they have always been this way. So you have to ask yourself: in a better-performing economy, which sectors and companies will benefit from profit growth?"
Wren specifically pointed to financial stocks, which will benefit from growing loan demand and falling interest rates; large-cap stocks generally have better cash flow, access to credit, and provide more products to consumers.
Wall Street is optimistic about the outlook for U.S. stocks in 2025, especially in the context of President Trump potentially introducing some market-friendly policies. However, forecasters generally expect more moderate gains in the stock market compared to this year, with the S&P 500 index up 26% year-to-date in 2024.
Deutsche Bank's outlook report released this week predicts that the benchmark index may rise another 17% next year to 7000 points, due to improved investor risk appetite and a rebound in business activity.
Article reposted from: Jin Shi Data