As we hit the midpoint of 2025, investors are watching a stock market in a curious holding pattern. After a sharp “V-shaped” recovery from an early-year correction, the S&P 500's trajectory for the rest of the year isn't a clear soar or crash. Instead, Wall Street has a surprising, more cautious answer.
Here are four key reasons why analysts believe the market is poised for a sideways journey, demanding vigilance rather than wild swings.
1. Lingering Economic Headwinds & Recession Worries
Beneath the S&P 500's recovery, the U.S. economy shows cracks. May saw consumer sentiment drop to near historic lows, while inflation expectations surged to levels last seen in 1981. JPMorgan strategists even noted a tariff-driven drag on Q1 GDP, suggesting the U.S. could be “closer to recession than expected.” Indeed, economists now put the odds of a recession in the next 12 months at 45%, a significant jump from January. This persistent economic uncertainty limits upward momentum.
2. Tariffs' Unyielding Grip on Corporate Earnings
Despite some recent tariff rollbacks and delays by President Trump's administration, the broader impact of trade policies remains a significant concern. The average tax on U.S. imports has shockingly increased sixfold since Trump took office, hitting 14.4% – the highest effective rate since 1939, according to JPMorgan Chase.
Esteemed figures like Bill Ackman and Jamie Dimon have publicly warned of dire consequences, from an “economic nuclear winter” to increased consumer prices and slower growth. This has led analysts to consistently lower S&P 500 earnings growth estimates for 2025 from 14% down to 8.5%. These tariffs present an ongoing headwind to corporate profitability, tempering market enthusiasm.
3. Wall Street's Consensus: Expect a Sideways Market
Perhaps the most unexpected takeaway is Wall Street's shift from bullish forecasts to a more tempered outlook. While the S&P 500's median year-end target was 6,600 among 17 major institutions in December, that figure has now been revised down to 5,900.
Given the S&P 500's current level around 5,844, this median target implies very little movement – potentially even a slight downside of 1% – by year-end. This consensus points to a market that's neither expected to dramatically ascend nor collapse but rather consolidate within a relatively narrow range.
4. Upcoming Data Will Fuel Short-Term Volatility
In a sideways forecast, do not expect a tranquil ride. Weeks will be busy producing significant economic reports, which could lead to volatility in the markets. Investors will receive the second estimate for second-quarter GDP and reports on consumer spending and the preferred inflation measure of the Federal Reserve (PCE price index) soon thereafter. And a few days later, reports on May job openings, payroll, and unemployment will follow. Each report has the potential to sharply change sentiment and prices and suggests that investors should mentally prepare for volatility despite a fairly sideways forecast into 2025's second half.
