One of Wall Street’s biggest bulls sees the S&P 500 soaring 16% early next year before a sharp sell-off in the 2nd half

Fundstrat is out with its 2025 stock market outlook, and its projection it not as rosy as it has been in prior years.

Tom Lee, the firm’s head of research and one of the most enduringly bullish forecasters on Wall Street, still expects the stock market to rise in 2025, just nowhere near as much as 2023 or 2024.

Lee set two price targets for the S&P 500 in 2025: a mid-year target of 7,000 and a year-end target of 6,600.

According to Lee, the stock market could rise as much as 16% from current levels in the first half of the year, but much of those gains will likely evaporate in the second half before a year-end recovery takes hold.

“There are strong tailwinds supportive of stocks in 2025. But we see this as a tale of ‘two years,'” Lee said in his 2025 outlook note.

All-in, Lee sees the S&P 500 rising 8% in 2025, which is about in line with historical annual returns for the stock market, and is slightly above the average Wall Street 2025 year-end target of 6,539.

The two supporting factors for the stock market next year include a Fed “put,” referring to the idea that the Federal Reserve will bolster markets with more interest rate cuts, sticking to the labor side of its mandate as long as inflation remains subdued.

The other factor is the Trump “put,” which speaks to the idea that President-elect Trump will implement business friendly policies like lower tax cuts, which should boost business sentiment and increase corporate profits.

Additionally, there should be a boom in mergers and acquisitions under the income Trump administration, according to Lee.

Those factors should drive investor capital away from cash and bonds and into equities, and they could even spark a return in “animal spirits” that help push stock prices higher, according to the note.

But it’s not all positive from Lee, who highlighted two big risks that could shake up markets next year.

“To us, the downside risks are: DOGE too effective and GDP falls on spending cuts, [and] tariffs are actually implemented and GDP impacted,” Lee explained.

Those two risks, combined with historical precedent for weak stock market returns in the second half of the year after two back-to-back annual returns of 20%, suggest to Lee that the stock market could see a sharp correction in the second half of the year.

Lee forecasts the S&P 500 retreating from a 7,000 peak in the second half of the year to as low as about 6,000 before rebounding to finish the year at 6,600.

Lee’s target is derived from a 2026 S&P 500 earnings per share estimate of $300, with a 22x earnings multiple.

In terms of which areas of the stock market to favor, Lee likes financials, industrials, bitcoin-related stocks, and small caps.