According to Investing.com – BCA Research, it is more likely to fall below 5,500 or rise above 7,100 than to stay within the consensus forecast in 2025.
The firm believes the equity index’s forecast range is “too narrow.”
The 2025 forecast range in the sell-side strategist’s targets is clustered around an average of 10% gross profit, assuming the index ends 2024 at 6,040. However, BCA emphasizes that average results in equity markets are rare.
“Only four of the 10 years have had earnings in the range of what all sell-side firms are projecting next year,” strategist Juan Correa said in a note.
“While most strategists predict an average year for the S&P 500, average returns don’t happen often.”
This conclusion is confirmed by historical data. Since 1926, S&P 500 returns have frequently deviated from the “average” range. If outliers are excluded, the probability of returns within the consensus falls to only 17%.
“Nearly all of the major sell-side firms are exploring a range that has occurred in less than 1 in 5 years,” adds BCA.
The BCA also highlights that the annualized earnings (EPS) growth forecast for 2025, which ranges from 4% to 19%, fails to reflect historical earnings volatility.
Compared to the actual distribution of EPS growth since 1926, current projections represent only about 40% of realized results. A similarly narrow expectation applies to changes in valuation multiples, which have historically been much wider.
On the tendency of strategists to gravitate toward modest goals, Correa notes that this approach may seem reasonable for risk management, but it often stems from a “safety in numbers” mindset.
“The industry is particularly punishing when you do something wrong that others haven’t.” It is much safer to be somewhat wrong with others than to be plainly wrong yourself,” said the strategist.
Ultimately, the BCA argues that extreme outcomes are much more likely next year. “We believe that most of the S&P 500’s targets for 2025 are likely to be distant.” As a result, our negative view will either be spectacularly right or spectacularly wrong,” the report concludes.