Good morning investors! We have another shortened trading week that will bring little economic data and no company earnings.

The Santa Rally hasn’t panned out too strongly just yet, but seasonal trends suggest upside before the calendar turns.

Professional forecasters, for their part, see nothing but green in the new year.

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Optimism abounds

It’s true that stocks usually go up most of the time, but the market’s latest two-year run makes any cliché sound like an understatement. 

Since bottoming in October 2022, the S&P 500 has returned roughly 66%.

The index is on track for back-to-back annual returns of more than 20% for the first time in over two decades, handily outpacing the 10% gain seen in an average year.

As you might guess, no one on Wall Street expects stocks to fall in 2025. 

Among the 16 firms tracked by Opening Bell Daily, S&P 500 forecasts for the new year range between a 7% and 19% annual return from Friday’s closing price. 

UBS holds the most bearish view with a year-end price target of 6,400, while Oppenheimer is the most optimistic at 7,100.

Traders on the prediction market Kalshi, meanwhile, see 17% odds the S&P 500 ends 2025 between 6,400 and 6,599, which lands in the middle of Wall Street’s forecasts.

Depending who you ask, the combination of Trump 2.0, hawkish Fed policy, inflation and fluctuations in the AI trade will provide either a tailwind or roadblock for equities. 

It’s worth noting that Wall Street effectively never predicts a down year.

Even the weakest year-ahead forecasts of the last several decades have afforded stocks marginal gains. Those predictions don’t always hold — the S&P 500 has notched 13 losing years in the last 50 — but it’s rare to find a formal expectation for a loss. 

Notably, over the last 24 years, forecasters’ price targets have actually missed the mark by 14% on average, according to Bespoke Investment Research. 

Of course, even the most paltry track record won’t deter well-paid strategists from publishing their next prediction.  

In any case, historical data favors the optimists. Across any 12-month stretch, stocks have finished higher three in four times.

Expand that time frame to five years and stocks trade higher nearly 90% of the time. 

“We believe 2025 will see another year of healthy stock market returns, but with more volatility as investors return to reading every Federal Reserve tea leave and as we start to parse policy action out of Washington, especially when it comes to tariffs and taxes,” said Carol Schleif, chief market strategist for BMO Private Wealth. 

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Elsewhere:

📈Stock market traders are embracing risk. A startling 48 million options contracts changed hands on an average day this year, on pace for a record according to data back to 1973. That’s up 9% from 2023, and it would mark the fifth consecutive year of all-time highs. Traders are increasingly look to amplify their bets on volatile names. (WSJ)

⚡️Big Tech is going nuclear. Data centers powering AI and cloud computing could soon get so big that they demand more electricity than major cities. That’s pushed leaders in the AI race like Amazon, Google, Microsoft and Meta to invest in nuclear power, reversing a trend of recent decades. (CNBC)

Rapid-fire:

• Former president Jimmy Carter died at 100 years old on Sunday (CNBC)

• Steep valuations and extreme concentration in tech could still usher in a “lost decade” for stocks (Barron’s)

• Top Wall Street executives shared their best career advice (Business Insider)

• Some Americans older than 80 regret not saving more, not spending more on themselves, and failing to plan for business closures (WSJ)

• Biden’s student-loan forgiveness efforts are officially over, and borrowers now report feeling hopeless (Business Insider)

• The housing market is historically unaffordable, and that’s unlikely to change in 2025 (Opening Bell Daily)

Last thing:

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