Next year may be defined by a “potential higher likelihood of uncertainty.”
That’s according to Morgan Stanley’s Mike Wilson, whose year-end 2025 bull case for the S&P is now 7,400.
I absolutely love the phrase “potential higher likelihood of uncertainty.” That’s quintessential top-down sell-side equity research. It’s possible, Wilson reckons, that the probability of unpredictability will be higher going forward.
That “potential higher likelihood of uncertainty” accounts for what ol’ Mike euphemistically described as “a wider-than-normal bull versus bear case skew.” The table below shows that skew.
As you can see, Morgan Stanley thinks it’s possible the S&P could crash to 4,600, rally to 7,400 or land anywhere in-between 13 months from now.
It’s — umm — hard to argue with that? But I’m not sure it tells us a lot. In my personal bear case for 2025, I get into a deadly car crash. In my personal bull case, I stumble on the fountain of youth. The base case says 2025’s more or less like 2024 for me and I end up incrementally richer, and one year older, than I was 12 months previous.
Note from the columns on the right in the table that Wilson’s base case for the S&P in December of 2025 is now higher than his old, June 2025 bull case for the benchmark. So… what? I don’t know, honestly. I can’t answer that question. I could take you on a completely superfluous ride back through the evolution of Wilson’s S&P target (I used to do that every week) but what would you get out of such an exercise?
I’ve mentioned this on a number of occasions, and this seems like a good time to reiterate it: This stuff — sell-side strategy notes emanating from banks’ research departments — serves a purpose, but the idea, perpetuated implicitly by me and a handful of other web portals over the years, that it should be a part of anyone’s daily balanced information diet, is nothing short of ridiculous. Even more ridiculous is the financial media’s penchant for celebrifying analysts and newsifying their notes.
I got an email a couple of nights ago from somebody who declared, proudly, “I worked on Wall Street for 29 years selling institutional research.” He went on to describe me as “an excellent analyst” in the course of recalling his youth. Then he got to the point: He hates me. My articles, he wailed, are “like reading a Goldman, Smith Barney or DLJ research report and all of a sudden the author starts raving about Jimmy Carter.” As you can imagine, I promptly ruined that gentleman’s evening by informing him that although I am most assuredly “excellent,” I’m not “an analyst,” nor have I ever been one, nor do I like people who are, nor do I have any sort of special reverence for Goldman (nor for Smith Barney nor DLJ, dinosaur shops which today’s B-school grads only know through fossil records).
Don’t get me wrong: I scan and otherwise peruse voluminous amounts of sell-side research every, single week. And as my buy-side readers know, it’s year-ahead outlook season, which means my inbox is about to be inundated with the stuff. To reiterate, that stuff does serve a purpose and I’ll always hit the high points, and otherwise highlight notable “calls,” but I implore you, don’t be Saturday evening email guy: Don’t go into that good night thinking this “research” is the be-all, end-all of analytical investigation. If you spent three decades selling this stuff to people professionally, you wasted your life. I’m sorry. But not as sorry as you should be, because it’s too late for you now.
Anyway, the math on Wilson’s base case (the 6500 SPX for year-end 2025) is a 21.5x multiple on $303 of aggregate index earnings. “A potential rise in corporate animal spirits after the election could catalyze a more balanced earnings profile,” he wrote, adding that the bank sees the market multiple “staying elevated relative to history at 21.5x [given that] it’s rare to see significant multiple compression in periods of above-average earnings growth and accommodative monetary policy.”
And yet, he also said there’s “scope for modest valuation compression relative to current levels” in keeping with a “typical mid-to-late-cycle environment.” Wilson was also keen to note that Morgan Stanley “appreciate[s] that valuation may be volatile throughout the year.”
So, you’re saying there’s a “potential higher likelihood of uncertainty”?
Yes…it may rain or snow by the end or the year (here in New Mexico), and my base case is for the sun to rise every day, but be up for fewer hours each day for the next 5 weeks or so…with a trend reversal highly likely…
“Sorry friend, this train doesn’t stop in Tucumcari…”
solid advice – oh, you’re not an advisor either …
I think we (buy side folks as you label) often forget that the ‘sell-side’ SELL has an agenda … to sell. we forget that they are biased to their objective, and yea we sort-of hold them accountable to their wisdom errors – for a very short timeframe.
Let’s never forget they’re hawking s**t that we may / may not need.
yeah and I mean, your superstars — the 2 and 20 “brand names” — obviously pay no attention to any of this stuff whatsoever
I find it almost odd that there isn’t a concurrent year ahead outlook for the 10 Year issued with the charts for the various equity indexes. I guess that’s just a key component of the potential for a higher likelihood of uncertainty. I will endeavor to persevere.
Oh there is. Equity teams typically base their outlook in part on the rates team’s 10-year forecast. Here’s Hornbach (MS rates): “In the US, we expect Treasury yields to move lower over the forecast horizon, helped by 75bps of Fed rate cuts – more than markets currently price. 10-year Treasury yields reach 3.75% by mid-2025 and end the year just above 3.50%.”
Thanks! That’s a positive forecast for equities for sure. We’ll see!
Upon entering his class for the first day, my late sophomore English (writing) teacher presented us with a list of over 200 banned words that we were never to use in an assigned paper, upon our own peril. During that fateful year we had to write 165 papers (all graded overnight) so we had plenty of opportunities to mess up. The list included words such as: could, would, might, perhaps, possibly, etc., any word that professed some form of uncertainty, ie. “weasel” words. He told us that if one wished to be a good writer one had to make only positive declarative statements or ask questions leading to these types of answers. Otherwise, we should shut up until we were possessed with proper evidence to support what we wished to say and only base our arguments on proper logic. Oh, and all those papers we wrote were based on the day’s reading of the works of Thoreau, Emerson, and other pithy authors and all the topics for our papers were unannounced in advance. I did not get an A but later in life I was able to pay for my daughter’s fine education at an excellent classic small liberal arts college by writing pithy reports for clients wishing to buy weaselly trash to present to regulators and other thoughtless readers. After that English course I always felt dirty charging 20k for some forbidden report (for a minute or two). I also took enough stat (taught it to hundreds as well) to know that all those barred words were sometimes necessary.
As to your late night communique, I suspect most of us who come here daily are not greatly enriched by canned idle sell side garbage. We (at least I) feast on the synthesized output of your sources that you work hard to present. When I got my doctorate in Finance long ago, the early gurus and eventual Nobel laureates hadn’t even spoken yet (starting in 1964). You have showed me the real world of high finance today including investment strategy I didn’t even understand well enough to ask pertinent questions. When I wish to make decisions that help me reach my goals, I have access to a few hard working beavers who do amazing research the way I would teach it. They do the work and I grade their papers and make the money I want to make. You give me the critical context info I need and send me after other bits I like. BTW, your sarcasm is nonpareil.
There is just a lot of uncertainty right now, at least in my head.
Initially the equity market was buying Trump running the economy hot with bigger deficits and higher inflation, and the bond market was selling the same scenario.
Then we started getting the sector-specific uncertainty from the cabinet picks – notably Hegseth to DoD, RFK to DHHS, I think his FCC pick deserves note, and the big-deal pick to come at Treasury. When the DOGE starts its “work” and budget/tax haggling starts, more uncertainty. I recall a Bloomberg article a week ago suggesting the municipal bond tax exemption could even be at risk, though no-one else seems to be running with the idea.
I wonder when the equity market will start selling Trump and his handpickeds mis-managing the economy into recession, which the bond market might or might not buy.
January 2025 is supposed to bring a flood of executive orders. Uncertainty could keep rising in 2025.
Meanwhile 2025 estimate revisions are negative, valuations are very high.