Financial Experts’ Opinions on Stock Market Trends

Global equity indexes have climbed to record highs in mid-2025, fueled by easing inflation pressures and hopes of Fed interest-rate cuts. Analysts generally expect further gains, but note that they will likely be more muted than the torrid rally of the past two years. U.S. strategists like Morgan Stanley’s team project modest S&P 500 gains in 2025, and Goldman Sachs portfolio managers similarly point to a low-double-digit upside as long as corporate earnings hold up. At the same time, they warn markets may remain volatile due to high valuations and policy uncertainties. In short-term terms, most experts see the next few months as a test of economic data and Fed policy: positive surprises (soft inflation, strong growth) could drive stocks higher, while any resurgence of inflation or geopolitical shocks could trigger pullbacks.

Short-Term Outlook (Rest of 2025)

Experts emphasize near-term volatility and two-way risks. Morgan Stanley’s Andrew Slimmon cautions that after two strong years, 2025’s stock gains will probably be “more muted”. A Goldman Sachs fund manager similarly notes that July’s tame CPI print has boosted the odds of a September Fed cut, which in turn helped U.S. stocks hit new highs. Indeed, by mid-August 2025 the S&P 500 and Nasdaq both closed at record levels on renewed Fed-easing optimism. On the flip side, a surprisingly hot producer-price report in mid-August briefly shook investor confidence, sending bond yields up and stocks flat. This suggests markets are now highly sensitive to inflation data: below-expectations readings fuel risk appetite, while upside surprises spark caution.

In practice, strategists advise a balanced approach. For example, BlackRock’s equity team says to expect continued bouts of volatility due to policy and geopolitical uncertainty, but views swings as buying opportunities in quality names. Morgan Stanley also points out that broad market euphoria is not yet evident – retail fund inflows remain far below past boom levels – so the rally may have legs if economic signals stay benign. Many firms have adjusted year-end price targets to reflect the now-expensive market: as Schwab’s Liz Ann Sonders observes, S&P 500 forward P/Es in early 2025 were back near 2021 highs, meaning future gains will have to come from corporate earnings, not multiple expansion. In summary, strategists expect sub-10% gains for 2025 as a whole unless economic data dramatically improve. Investors are being reminded to watch for signs of excess – for instance, continued heavy retail buying or runaway credit growth – which could signal a market top.

Mid-Term Outlook (2026–2027)

Looking beyond the next 12 months, most experts anticipate that the bull market will continue at a moderated pace. Edward Jones economists and strategists foresee U.S. GDP growth easing to roughly 1.5–2% in 2025 but remaining positive, underpinned by consumer strength and a resilient labor market. In their view, these solid fundamentals will support “an ongoing U.S. stock market expansion, albeit with more modest gains”. They don’t expect a recession or aggressive Fed tightening in 2025–2026, which suggests the current cycle could run at least into 2026. Bank of America/Merrill Lynch’s team likewise projects that markets are in a “reexamine” phase now, moving to a “regrowth” phase by 2026 as uncertainties clear. BofA’s Marci McGregor expects first-half volatility and earnings caution (as firms digest tariffs), but believes a broader recovery should take hold by 2026.

In practical terms, most forecasts for the S&P 500 through 2026 remain cautiously bullish. For instance, analysts trimmed targets for year-end 2025 after the early-year runup, implying only single-digit upside from current levels. Their caution reflects the high starting valuations: Schwab analysts point out that after the spring rebound, the forward P/E on the S&P is near cycle highs. They note the 2024–25 rally has left little “multiple juice” to squeeze; future gains will rely on real earnings growth. On the Fed front, market expectations broadly call for two or three rate cuts in late 2025–2026 (echoing Fed officials like Governor Christopher Waller), which should ease financial conditions and in turn help stocks. For example, Reuters reports show traders pricing in an ~89% chance of a 25bp cut by September. Thus, unless growth unexpectedly stalls, medium-term outlooks remain constructive. Investors are generally advised to stay invested but selective – focusing on businesses with solid cash flows – because missing a late-cycle rally can be costly.

Long-Term Themes (2027 and Beyond)

Over the multi-year horizon, strategists emphasize structural drivers such as technology adoption, demographics and policy shifts. A key theme is artificial intelligence and productivity. Morgan Stanley notes that if AI adoption accelerates, it could trigger a productivity boom akin to the late-1990s internet era. They show that after two 20%-plus market gains (1995–96), the S&P surged another 80% over three years. By analogy, if today’s AI trend proves as transformative, it could justify extended stock gains. Similarly, Goldman Sachs strategists say “the big are getting bigger”: they maintain a strong conviction in the largest tech firms, expecting them to keep growing their market leadership. Over time, the shift to cloud computing, 5G, and other megatrends (health tech, renewable energy, etc.) is expected to underpin earnings growth even if near-term volatility persists.

That said, several long-term concerns temper expectations. Many analysts highlight that we are exiting the old regime (the “Great Moderation”) of low, stable inflation and positive correlation between bonds and stocks. In the “temperamental era,” inflation and deficits can hurt stocks, so the Fed’s dual mandate may at times conflict with growth. Schwab emphasizes that higher tariffs could keep inflation sticky, making Fed rate actions more uncertain. Over several years, a further slowdown in labor demand could also be a risk: Edward Jones projects the unemployment rate may rise modestly but remain below 4.5%. In practice, however, most forecasters do not foresee a double-dip recession; they expect below-trend growth but a continuation of expansion into 2027.

Given this backdrop, asset allocators generally recommend diversification across styles and regions. For example, both Morgan Stanley and Goldman advise not to overweight only “hot” growth segments: Morgan Stanley’s team suggests holding a balance of growth and value names (e.g. blend big tech with financials/industrials). By purchasing a mix of high-quality businesses (tech, healthcare) and cyclicals (banks, materials), investors can hedge against whichever side of the cycle materializes. In summary, the long-term consensus is cautiously positive: absent a major shock, stock valuations could rise further if earnings growth returns, but this process will likely be gradual and punctuated by drawdowns.

Key Sectors & Themes

• Technology / AI: Virtually all experts cite tech as the engine of future gains. As noted above, Goldman Sachs and Morgan Stanley urge investors to “lean into” the mega-cap tech stocks, arguing that their scale and AI leadership can justify high valuations. Nvidia’s sales beat and AI momentum have been key drivers of recent rallies. Even those wary of valuations still acknowledge that companies at the forefront of AI could deliver disproportionate returns over time. Thus, technology – especially sectors like semiconductors, cloud, and software – remain favorite themes for the medium and long term.
• Financials / Value Stocks: With interest rates still above pre-2022 norms, banks and insurers have room to profit, so strategists see value among finance names. Indeed, U.S. bank shares have rallied strongly on rate-cut bets recently. Morgan Stanley specifically highlights financials (and industrials) as a value play to complement tech and balance portfolios. Overall, analysts suggest a mix of growth and value is prudent: large-cap growth (tech) isn’t cheap, but traditionally defensive/value sectors (like financials, consumer staples and energy) offer lower valuations.
• Consumer Discretionary: The strength of consumer spending is a wildcard. BofA’s team notes that resilient high-income households may keep buying smartphones, cars and vacations, which should help retail and leisure stocks. Conversely, Schwab and BlackRock analysts warn that if tariffs push up prices, lower-income consumers might tighten budgets, favoring value retailers and essentials. In practice, sector analysts recommend focusing on consumer companies with strong pricing power and efficiency (to pass or absorb cost pressures).
• Industrials / Industrials: Given a probable infrastructure/deregulation push under the new administration, experts see opportunities in cyclical industrials and materials. For example, if tariffs ease on selected goods, trade-sensitive sectors could rebound. Morgan Stanley and Goldman both note that parts of the industrial space may be undervalued relative to earnings, suggesting potential upside as global growth steadies.
• Healthcare and Other Defensive Sectors: Healthcare, utilities and consumer staples historically outperform in turbulence. BlackRock and others emphasize quality and diversification: they recommend including defensive names (healthcare, staples) to add resilience. Utilities are noted for a unique long-term niche: Merrill Lynch’s Marci McGregor suggests that the growth of AI and data centers will raise electricity demand, potentially benefiting the utility sector in a multi-year horizon.
• International / Value Opportunities: Experts frequently point to non-U.S. markets as sources of alpha. Morgan Stanley and JPMorgan analysts note that many European and Japanese stocks trade at discounts to their U.S. peers on a quality-adjusted basis. For example, Charles Schwab research highlights that “European stocks deserve a spot in investors’ portfolios” due to lower valuations and policy-driven growth initiatives. On the other hand, Chinese equities remain volatile: U.S. Bank strategists observe that China’s markets briefly rallied in 2024–25 but face headwinds like property debt and deflationary pressure. In aggregate, MSCI Emerging Markets stock indexes have outperformed the U.S. so far in 2025 (≈+20% vs. +10.6% for the S&P). Notably, Rob Haworth of U.S. Bank advocates broad EM exposure, arguing that manufacturers and tech exporters outside China (e.g. South Korea, Taiwan, India) are gaining global market share and can help diversify portfolios. In summary, analysts recommend global diversification: overweight regions like Europe and Japan, and maintain a pro-China/EM tilt if valuations are compelling and policies remain supportive.

Macroeconomic & Policy Drivers

Across forecasts, a few key macro indicators drive the outlook:

• Inflation: Most forecasters expect inflation to slow in the coming year. OECD simulations cited by Schwab show U.S. inflation decelerating to around 4% by end-2025 (assuming current tariffs). Firm estimates generally call for inflation to approach the Fed’s 2% target by 2026, albeit with volatility along the way. The market’s recent rally has been underpinned by “good news” inflation prints (e.g. July’s CPI as expected). However, experts warn that tariffs or energy shocks could reignite higher prices, which might force the Fed to hold off on cuts.
• Interest Rates: Fed policy is the central theme. In late 2025 the Federal Reserve’s stance will be closely watched. Fed officials like Governor Christopher Waller have signaled they favor beginning rate cuts by September 2025 and moving to a neutral stance (~3%) by mid-2026. If the Fed proceeds with this path (as markets largely expect), it should benefit stocks by easing credit costs. However, Liz Sonders and others stress that policymakers face a “dual mandate” conflict: tariffs push inflation up while slowing growth. Hence any Fed pivot depends on incoming data (jobs, wages, producer prices) and could be delayed if inflation surprises upside. Overall, current futures markets imply 2–3 quarter-point cuts by end-2025, and strategists view that as a tailwind for equities (supporting leverage and valuations).
• Economic Growth: U.S. growth is projected to slow but stay above zero. Edward Jones and Bank of America forecast 2025 GDP around 1.5–2%. Global growth is similarly modest (OECD sees world GDP falling to ~2.9% in 2025). The main risks are policy-driven: trade barriers, regulatory shifts and fiscal deficits. Encouragingly, most strategists do not foresee a recession in 2025 or 2026. Labor market data will be key: if unemployment stays low (<4.5%) and wage growth beats inflation, consumer spending should hold up. But if jobs slip, it could presage a slowdown. Importantly, Fed officials have noted recent softening in job growth (e.g. average payrolls ~35,000 per month) even as unemployment is stable. Markets will be monitoring the August jobs and CPI/PPI reports as pivotal indicators of economic momentum.
• Fiscal & Regulatory Policy: The new U.S. administration’s agenda – including tax cuts, deregulation and immigration reform – is a major wildcard. Edward Jones highlights that incoming proposals on taxes and tariffs are “new walls of worry” for markets. However, if policies turn pro-growth (corporate tax cuts, deregulation in tech/financials), they could boost stocks. BlackRock notes that once the extremes of the tariff wars are digested, markets may shift focus to other U.S. initiatives like tax reform, which could act as positive catalysts. In Europe, fiscal spending (e.g. German investment plans) and ECB policy will drive regional equities. In emerging markets, local policy (central banks cutting rates, Chinese stimulus measures) also influence capital flows. Investors should stay attuned to major policy announcements, as sudden shifts (e.g. a trade truce with China or a fiscal package) tend to be market drivers.

Geopolitical and Other Risks

Geopolitical developments have been front-and-center in expert commentary:

• Trade and Tariffs: The U.S.-China trade conflict and new tariffs have loomed large. Analysts agree these have already dented growth and raised costs in 2025. In response, markets have swung violently – for example, a mid-April selloff on tariff scare was quickly reversed when talks resumed. So far, investors seem to have priced in much of the risk: by summer, the market recovered after partial tariff delays. Sonders warns that these trade barriers are akin to “stagflation on the mind,” pointing to OECD projections of slower growth and higher inflation from tariffs. The rolling nature of tariffs (e.g. 90-day pauses on some goods) means uncertainty will persist. BlackRock and others therefore emphasize that tariffs make inflation outcomes more volatile and weaken the bond-stock correlation. In sum, trade policy remains a risk to watch: any flare-up could unsettle markets, but resolution or stability in tariffs would relieve a major overhang.
• Global Conflicts: Aside from trade, geopolitical tensions like Middle East conflicts or Russia/Ukraine add noise. Remarkably, strategists note that 2025’s markets have largely shrugged off these issues so far. Kitces’ Clearnomics report observes that international stocks have actually outperformed U.S. equities despite global unrest. Oil prices remain relatively contained and bond yields low, suggesting markets believe such conflicts will not trigger an immediate economic crisis. However, any major escalation (e.g. sharp oil supply disruptions) could change that. Experts continue to factor in geopolitical risk premium, especially in safe-haven assets.
• Currency and Global Flows: A weaker U.S. dollar can help U.S. multinationals and boost emerging markets. Some analysts see the recent dollar drop as a tailwind for non-U.S. equities. Conversely, Fed policy divergence and fiscal deficits could make foreign capital more cautious about U.S. assets. These currency and capital flow dynamics will influence relative returns; for instance, a resurgent dollar could weigh on U.S. stocks next year.

Regional Markets

• United States: As the dominant market, U.S. stocks set the global tone. Experts generally favor staying long U.S. large caps, especially in tech, but note that many U.S. indices are richly valued. Earnings in the U.S. rose strongly in Q1 2025, but company guidance has been cautious due to tariffs. If corporate profits continue to grow (even modestly), U.S. markets can still grind higher. However, many strategists are specifically looking outside the U.S. for extra upside (see below).
• Europe: Many analysts now view Europe as an undervalued bright spot. Charles Schwab’s Michelle Gibley notes that low regional valuations and fading inflation make Europe attractive. Eurozone unemployment is the lowest in 25 years, and inflation is stabilizing near ECB targets. The big risk is slowing export demand (the tariff-driven boost has waned) and weaker manufacturing orders. Still, a pickup in German business investment and a potential ECB rate cut by late 2025 could lift stocks. BlackRock points out that Europe’s lagging sectors (luxury, healthcare, semiconductors) have high-quality companies that may catch up. Overall, experts suggest increasing small-to-moderate allocations to European equities for diversification.
• Asia-Pacific: Japan has had a strong rally; the Nikkei crossed 43,000 in mid-2025 (a new record) as its currency remained weak. Analysts attribute this to Japan’s own reforms and global demand for tech. In China, the story is mixed. 2025 saw China roll back some U.S. tariffs and launch stimulus measures, which helped Chinese stocks rally from 2024 lows. However, China’s economy is still grappling with a real-estate downturn and low inflation. Forecasters caution that China’s growth may remain subdued, so Chinese equities, while cheap on some metrics, carry extra risk. Many advisers recommend a measured China exposure, focusing on state-favored sectors (tech, renewables) rather than consumer names.
• Emerging Markets: Broad EM has outpaced the U.S. this year: through mid-August 2025, the MSCI Emerging Markets Index was up about 20.4% vs. ~10.6% for the S&P 500. This performance reflects weaker U.S. dollar trends and strong rallies in places like India and Korea. U.S. Bank’s Rob Haworth suggests diversifying with EM equities, as these markets now have higher weights in manufacturing and tech outside China. His view is that many EM economies may benefit from the U.S.-China trade reorientation (capturing demand shifted away from China). Key risks include U.S. rate policy and domestic political turmoil in EM nations. Nonetheless, the consensus is that a global portfolio should include EM stocks for diversification, while being selective at the country/sector level.

In summary, recent data and Fed signals have moved markets higher, but the consensus from economists and fund managers is cautiously optimistic. They expect a continuation of this bull market at a slower clip: modest equity gains in 2025–26 supported by reasonable growth and easy money, punctuated by volatility from inflation data or politics. Core themes include technology/AI growth and selective value plays, along with increased geographic diversification (from Europe to parts of Asia). Macroeconomic indicators (inflation, employment, Fed decisions) remain critical to watch, as do geopolitical shifts (trade policy, conflicts). Investors are advised to focus on quality companies, maintain balance across sectors, and consider adding global exposures – since, as one strategist put it, with U.S. markets historically expensive, opportunities may lie outside the U.S. as well. Ultimately, experts emphasize staying the course but staying diversified, so as not to miss out on the market’s “regrowth” phase while guarding against potential corrections.