The S&P 500‘s on fire this year. Since January, the US’s leading stock market index is up 29%, including dividends, almost triple its long-term average return. There are a lot of factors influencing this stellar performance. And the index is also benefiting from starting from a relatively low point courtesy of the 2022 stock market correction.
However, even with all this impressive growth, analyst forecasts for 2025 continue to be bullish. In fact, the latest predictions from the Economy Forecast Agency (EFA) suggest that the S&P 500 might skyrocket by more than 50%!
Could the S&P 500 skyrocket?
Let’s zoom in on the EFA forecast. In the worst-case scenario, it predicts the S&P 500 will reach 8,741 points. Its most optimistic prediction is 10,057, with an average of 9,399. Compared to the current level of 6,050, that suggests a potential gain of +44.5% all the way to +66.2%. That’s pretty extraordinary, so much so, it seems dubious.
The problem with relying on analyst forecasts is that they’re highly dependent on key assumptions. And often, investors are left in the dark as to what those assumptions are. As an educated guess, the EFA might be predicting strong domestic growth, as well as high investment returns from artificial intelligence (AI).
However, not everyone’s as optimistic. For example, analysts at Goldman Sachs predict the S&P 500 will grow by only 10% in 2025, including dividends. And Bank of America has drawn a similar conclusion with a 2025 year-end target of 6,666 – similar to Goldman’s expectations.
So which forecast is right? That’s anyone’s best guess. And if economic conditions suddenly take a turn for the worst, the S&P 500 may fall instead of rise. Personally, while I’m sceptical about the EFA’s predictions, I’m optimistic that 2025 will still be a good year for its investors.
Which stocks should investors buy?
Most of the attention right now is on the magnificent seven (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla). But a stronger focus on domestic production actually favours locally-oriented businesses, which comprise most of the rest of the S&P 500.
That’s why Axon Enterprise (NASDAQ:AXON) has caught my attention and I now hold some of its shares. Currently, in 208th place by market-cap in its parent index, Axon is a critical supplier to law enforcement across America.
The group built its reputation on non-lethal tasers and bodycams for police officers. However, in recent years, the firm’s started moving into cloud computing with a digital evidence management software suite. Using AI, criminal investigations can be drastically accelerated with automated report generation, evidence redaction, compliance auditing, and real-time officer monitoring, among others.
With its products used across the State and Federal levels, the firm seems to be building a mini-monopoly. However, that doesn’t make it a risk-free investment. There are alternative software solutions already in the market that Axon has to outperform, especially in markets outside the United States.
As for the stock itself, it currently trades at a very high premium driven by a combination of high expectations and an impressive track record. That opens the door to a lot of volatility, making it a high-risk growth stock to buy right now. Nevertheless, it’s a business I think is worth considering, especially if the stock price suddenly takes a tumble.
