The stock market is poised for strong gains in 2025, with Wells Fargo’s senior global market strategist Scott Wren predicting a bullish year for equities. Wren, who had previously anticipated a recession and held a bearish view on stocks earlier this year, now forecasts the S&P 500 could climb to 6,600 by the end of next year—a 10% increase from its current levels. He attributes this optimism to a resilient U.S. economy, declining interest rates, and stable inflation, which he sees trending toward the Federal Reserve’s 2% target.
Speaking to The David Lin Report on Monday, Wren emphasized that inflation has likely reached its near-term peak, but will gradually decelerate toward the Fed’s desired target. He also predicted that the Federal Reserve could reduce interest rates by another 100 basis points, helping maintain solid GDP growth at around 2.5% next year.
Wren’s outlook for the economy suggests a favorable environment for equities, particularly as inflation moderates and interest rates decline. “With inflation not being too high and the economy holding steady, there’s a strong case for being overweight equities and expecting good returns in 2025,” he said.
However, Wren cautioned investors to avoid one sector in particular: defensive stocks. He expressed a preference for cyclical sectors, which are more sensitive to economic cycles, both domestically and internationally. “We’re looking to move into cyclical sectors that are tied to economic recovery, and we’ll increase that allocation if we see a pullback in the market,” he explained. Defensive sectors such as utilities, healthcare, and consumer staples, Wren said, are likely to see muted returns in the coming year.
While some analysts predict that defensive sectors like energy and utilities could benefit from the artificial intelligence (AI) boom, Wren is less convinced. Although utilities may experience some benefits due to increased demand for data centers and AI infrastructure, he noted that their earnings are not closely tied to economic recoveries, making them less sensitive to broader market upturns.
In contrast, Wren highlighted financial stocks as a key beneficiary of the 2025 market landscape. He pointed to rising loan demand and declining interest rates as factors that should favor banks and financial institutions. Additionally, large-cap stocks, which tend to have better cash flow, greater access to credit, and more diverse product offerings, are likely to outperform smaller companies in a robust economic environment.
Wren’s optimism about the broader market is echoed by Wall Street’s outlook for 2025, though many forecasters expect more moderate gains compared to 2024, when the S&P 500 surged by 26%. Deutsche Bank’s forecast for next year suggests a 17% rally for the benchmark index, potentially reaching 7,000, as improving investor sentiment and business activity propel the market forward.
As 2025 approaches, Wren’s strategy calls for a focus on cyclical sectors that stand to benefit from a recovering economy while steering clear of defensive stocks that are less likely to thrive in the current market environment.
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