US shares have had an amazing run in 2024 and have outperformed the S&P/ASX 200 Index (ASX: XJO).
In the year to date, the S&P 500 Index (SP: INX) has ascended 28.1%, and the Nasdaq Composite Index (NASDAQ: IXIC) has risen 33.4%.
Over the same period, the ASX 200 has increased by 10.7% (this excludes dividend returns).
Can the US markets continue to shine in 2025 after such a strong surge this year? And how will Donald Trump's election as US President change things for shares investors?
Let's canvas a few expert opinions on what's ahead for the US share markets in 2025.
US shares to return 10% in 2025, says Goldman Sachs
Top broker Goldman Sachs forecasts the S&P 500 to return 10% in 2025.
Goldman's research team predicts the S&P 500 will rise to 6,500 points by the end of 2025.
The index closed at 6,075.11 points overnight, down 0.19%. During intraday trade, the US benchmark index smashed another all-time high at 6,094.55 points.
David Kostin, chief US equity strategist at Goldman Sachs Research, predicts the S&P 500 will have a third consecutive year of gains amid solid economic expansion and earnings growth of 11% in 2025.
Kostin said the impact of Trump's tariffs and corporate tax cuts on Goldman's earnings per share (EPS) forecasts "roughly offset one another". The broker forecasts S&P 500 EPS of $268 per share in 2025.
But there are risks.
Kostin notes that the S&P 500's price-to-earnings (P/E) multiple has increased by 25% to 21.7x over the past two years, compared to 17x at the end of 2022.
Kostin comments:
An equity market that is already pricing an optimistic macro backdrop and carrying high valuations creates risks heading into 2025.
Higher multiples can lead to weaker near-term returns and magnify the effects of any downturn, he said.
Diversification away from the Magnificent Seven
JP Morgan Global Market Strategist Ian Hui said the Magnificent Seven has fuelled the rise of the S&P 500 in 2024 due to projected earnings growth of 36.2% compared to 3.1% for the rest of the index.
The Magnificent Seven US shares are Meta Platforms Inc (NASDAQ: META), Amazon.com, Inc. (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG), Nvidia Corp (NASDAQ: NVDA), Microsoft Corp (NASDAQ: MSFT), and Tesla Inc (NASDAQ: TSLA).
Hui said:
Over the past two years, the seven mega-cap tech or tech-related companies have been major drivers of the U.S. equity market.
However, the focus isn't solely on their earnings. These companies are heavily investing in AI and research & development, suggesting the tech sector and tech-related companies will likely stay prominent.
According to JP Morgan's 2025 Market Outlook, the broker's base case for 2025 is a steadily expanding global economy, which should benefit risk assets like shares.
Hui notes early signs of investors diversifying away from the Magnificent Seven:
The contribution of the seven mega-cap tech-related companies to S&P 500 earnings per share (EPS) growth is decreasing, and their earnings growth rate is slowing, while it is accelerating for the rest of the index.
Hui said the rest of the S&P 500 should play a bigger role next year.
The rate-cutting cycle and resolution of election-related uncertainties should support a cyclical recovery in areas such as manufacturing, allowing less-favored sectors to benefit from tech-driven growth. This should help reduce concentration and valuation risks at the index level.
'Structural shifts' at play, says fund manager
Global fund manager Blackrock says it remains "risk-on" in today's non-typical business cycle amid significant long-term structural shifts.
In its Global 2025 Outlook, Blackrock says:
Mega forces like AI are transforming economies, breaking historical trends.
We stay risk-on as we look for transformation beneficiaries – and go further overweight U.S. stocks as the AI theme broadens out.
Blackrock does not think "pricey U.S. equity valuations alone will trigger a near-term reassessment".
However, the fund manager says it is "ready to adjust if markets become overexuberant".
US shares valuations stretched but 'justified'
Morgan Stanley also recommends going overweight in US shares (and Japanese equities).
In a recent research note, the broker said that US shares valuations were stretched but justified.
What justifies valuations that are richer than average, though, is a set of fundamentals that are better than average.
Markets have grown more certain that the U.S. economy and company fundamentals are sound, and this could send valuations yet higher six months from now if investors see that those fundamentals are sustained.
In a separate article, Morgan Stanley noted that US shares rallied after Trump's election. However, market exuberance has now settled, with investors focused on policy uncertainty heading into 2025.
Investors should consider reducing outsized holdings in the Magnificent 7 and other "Trump trade" outperformers.
Policy shifts are likely to produce new market leaders in 2025, and stock picking will be critical.
The broker favours US shares in financials, energy, residential real estate, domestically focused industrials, and branded consumer goods manufacturers.
Short-term view: Are we in a Santa Rally?
IG Australia Market Analyst Tony Sycamore says historical seasonality indicates further gains are likely for US shares through to mid-January.
Sycamore says:
Historically, the last two weeks of December rank as the third-best two-week period of the year, averaging a +0.99% return.
The first two weeks of January are even more positive, boasting an average return of 1.61%.
Together, they create the most favourable four-week stretch of the year, with an average return of 2.6%.
