These are the 4 biggest forces that will shape the stock market in 2025

• Wall Street strategists predict S&P 500 gains in 2025 amid four key market themes.
• Trump's tariffs could spark trade wars, affecting inflation, while rate cuts from the Fed are viewed as integral.
• Meanwhile, AI investments need to deliver revenue growth to sustain tech's stock market leadership.

Wall Street's top forecasters see an emerging set of themes driving their outlooks for the stock market in 2025.

For the most part, Wall Street expects another year of gains for the S&P 500, with the average price target suggesting upside of about 8%.

While each strategist has their own reasons for leaning mostly bullish on the market next year, there are crosscurrents between the forecasts that are worth highlighting.

Here are the four big themes that the top analysts on Wall Street see shaping stocks in the coming year.

1. Trump vs. the world

President-elect Donald Trump has been threatened tariffs against both America's adversaries and allies since winning the November election.

At the end of November, Trump suggested he would place 25% tariffs on goods imported from both Canada and Mexico if they didn't halt flows of migrants and crack down on drug trafficking across their borders.

In an interview with Meet the Press earlier this month, Trump called tariffs "the most beautiful word" and said that he "never really got the chance to go all out" on tariffs during his first term because of the pandemic.

While some view the tariff threats as mainly a negotiating tool, others believe that Trump is dead serious about his proposal to levy a tax on imports.

If he is serious, it could lead to an escalating trade war, a rebound in inflation, and, ultimately, losses for the stock market.

"Supply-side disruptions, including tariffs and mass deportations, are downside risks to growth and upside risks to inflation," Ned Davis Research said in its outlook.

BCA Research strategist Peter Berezin took it one step further, arguing in his 2025 forecast that an all-out trade war would unravel next year, sparking an economic recession.

"Hopes of a soft landing failed to materialize in 2025 as a trade war and a bond market riot pushed the global economy into a recession," Berezin said in his prediction for next year, writing as if he was looking back in time from January 2026.

But if Trumppursues a milder trade strategy, and if he instead focuses on tax cuts and deregulation, then the incoming administration could ultimately be a boon for stocks in 2025.

2. Trump vs. the Fed

Trump has reiterated his view that he won't seek to replace Federal Reserve Chairman Jerome Powell before his term expires in 2026.

Of course, that's being said at a time when the stock market is near record highs and the Fed is on course to continue to cut interest rates.

Will Trump sing a similar tune if either of those things changes? Wall Street strategists are pondering this.

If Trump's policies like tariffs and mass deportations end up being inflationary, it is likely that the Fed will pivot on interest rate policy and return to a hawkish stance.

The market is pricing in just two 25-basis point rate cuts from the Fed next year, down considerably since Trump won the election in November.

While Trump would have no authority to replace Powell before his term expires, he could use him as a punching bag as he did in 2018, criticizing the central bank while urging officials to lower rates.

Ultimately, the stock market wants to see interest rates come down, and is still banking on that to be the case in 2025.

Fundstrat's Tom Lee said a Fed "put" is intact for the stock market next year, which means the central bank will bolster markets by loosening monetary policy.

UBS, DataTrek Research, and Morgan Stanley also cited lower interest rates as the reason they expect the stock market to rise in 2025.

Any shock to the forecast for interest rates in 2025 could scramble forecasts and put downward pressure on stock prices.

3. Artificial intelligence: show me the money

The AI hype train didn't slow in 2024, with stocks tied to the sector seeing more big gains. Nvidia is up 170% year-to-date after tripling in 2023, while other AI Trades, including Palantir, Vertiv, and Broadcom, have surged 329%, 159%, and 93%, respectively.

But for that to continue, investors need to see meaningful revenue and profit growth from the companies that are investing so heavily in AI infrastructure.

If the returns on AI investment do not materialize, then spending for AI chips made by companies like Nvidia and Broadcom could suddenly dry up.

"Wall Street has a big question. They are now spending over $200 billion and their CAPEX is over 50% up. Where is the return on invested capital?" Baird tech strategist Ted Mortonson told Business Insider earlier this year.

In addition, there's hope that a productivity boom driven by the adoption of AI will lift the entire economy. If that doesn't appear to be happening in 2025, it could lead to a volatility shock for the tech sector, which has been leading the whole stock market higher over the past two years.

4. The consumer, the economy, and profits

Perhaps most surprising for markets over the past two years was the enduring strength of the economy and the continued sidestepping of a recession.

Economists and strategists were convinced that an economic downturn was imminent in both 2023 and 2024. Instead, the economy boomed, with GDP growing at a pace of nearly 3%, higher than right before the COVID-19 pandemic.

For the stock market to push higher again next year, continued resilience in the consumer, economy, and corporate profits is a must.

"Our December 2025 target of 6,600 will be fueled by solid economic growth," UBS said in their outlook note. That thinking was echoed by nearly all strategists in their 2025 outlooks.

If stocks are to keep the bull rally alive, the economy can't fall apart, and as long as the consumer stays resilient, it should be relatively smooth sailing for risk assets.

The flip side of that view comes from one of the only bears left on Wall Street, BCA Research, which believes that Trump's policies could upend consumers' balance sheets by sparking a trade war and driving inflation higher. The firm has the lowest price target on Wall Street, predicting that the benchmark index could fall by over 25% to 4,450.