Evercore Strategists Predict S&P 500 to Reach 6,600 by Mid-2025

Evercore strategists predict that the S&P 500 index will hit 6,600 by mid-2025, attributing this potential rise to several favorable factors following Donald Trump’s return to the White House.

Improved Investor Sentiment

The recent election result, showing a decisive victory for Trump and a potential Republican sweep in Washington, has boosted investor sentiment significantly.

Meltup/Performance Chase

Strategists, led by Julian Emanuel, note that Trump's win is catalyzing a "meltup/performance chase". This phenomenon is driven by increased consumer confidence and a resurgence in speculative trading across various assets, from Tesla (NASDAQ:TSLA) to small-cap stocks and cryptocurrencies.

Valuation Insights

Emanuel mentions that even though the current valuations are high, with the S&P 500 trading at a price-to-earnings (P/E) ratio of 24.6x, "expensive has a history of getting more expensive and lasting longer with greater gains."

Policy Changes and Market Trends

The market is expected to rise due to anticipated policy initiatives focused on deregulation, which had been lacking since the market trough in October 2022. Evercore projects that exuberance, characterized by extreme sentiment and high valuation, will be crucial in driving prices even higher.

Price Target and Earnings Forecast

The forecast includes a price target of 6,600 for the S&P 500 by June 30, 2025, based on a projected earnings per share (EPS) of $257 and a P/E ratio of 25.7x. For 2024, an EPS of $240 is anticipated, resulting in a slightly higher P/E ratio of 27.5x.

Historical Context

Historically, bull markets see an average gain of 152% over 50 months. Emanuel asserts that this ongoing bull market, now 25 months old with a 65% gain, still has potential for further growth.

Small Caps and Market Environment

Small-cap stocks are expected to outperform, benefiting from a favorable business environment characterized by reduced uncertainty.

Fed’s Role

Recent rate cuts by the Fed are integral to this optimistic outlook, with Evercore expecting a series of cuts to continue through 2025. This follows the "Fed Rate Cut Playbook," which typically supports tech, communication services, small caps, and defensive sectors such as consumer staples and healthcare.

Investment Strategy

Emanuel advises employing a barbell strategy, combining growth sectors with defensive investments to mitigate potential impacts from interest rates, which remain a concern for some investors.