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How to Play Wall Street Stocks in 2025? ETF Strategies in Focus
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After two years of annual gains topping 20% for the S&P 500, Wall Street experts anticipate a moderate performance in 2025. Brian Belski, chief investment strategist at BMO Capital Markets, has set a 2025 year-end target of 6,700 for the S&P 500, as quoted on Yahoo Finance. This reflects a 14% upside from Friday’s close and a 9.8% projected return for 2025. His current target for the end of 2024 stands at 6,100.
Meanwhile, Mike Wilson, Morgan Stanley's chief investment officer, issued a 12-month target of 6,500, implying an 11% gain for the benchmark index over the next year. Investors should note that if the S&P 500 is able to deliver another 20% gain in 2024, it would mark the first time since 1998-1999 that the index experienced successive years of such high growth, per Yahoo Finance.
The End of Outsized Returns?
Both strategists – BMO Capital and Morgan Stanley – suggest that the exceptional returns of the past two years may not continue into 2025. Per BMO, periods of slower growth are normal and healthy for bull markets.
BMO capital also believes 2025 will bring more balanced performance across sectors, sizes, and styles, ushering in a "normalized return environment." BMO also noted that year three of a bull market typically yields returns below the gains of the first two years and underperforms the historical average return for the S&P 500.
Rate Cuts and Broadening Market Strength
Both strategists agree that the Federal Reserve's expected interest rate cuts and strong US economic growth could broaden the rally beyond mega-cap tech stocks. Mongan Stanley’s Wilson expects continued improvement in business cycle indicators and a potential post-election boost in corporate sentiment to drive a more balanced earnings profile.
How to Play Stocks in 2025 With the ETF Approach?
Against the above-said scenario, investors can play the below-mentioned exchange-traded fund (ETF) strategies in 2025.
Broadening of the Market Rally
Optimistic economic outlook and dovish Fed should inspire investors to broaden their focus beyond the massive growth and technology stocks. Unlike the previous year's trend where investors clung to the 'Magnificent Seven' mega-caps for innovations and AI mania, the year 2025 should show a shift. Zacks Rank #2 (Buy) Invesco S&P 500 Equal Weight ETF (RSP - Free Report) is a good pick in this context.
Keep Focus on Small-Cap Stocks
Currently, the U.S. economy remains strong, with inflation nearing the Fed’s target and earnings continuing to grow. The U.S. dollar remains strong. A strong dollar provides an edge to domestic-focused companies as small caps do not have much exposure to the international market. Plus, Trump’s “America First” agenda should also continue to favor small-cap stocks (read: U.S. Dollar Hits a 1-Year High: ETFs to Gain & Lose).
Energy Sector ETFs to Gain?
President-elect Trump emphasizes energy independence, and his policies are likely to favor fossil fuels, promoting deregulation in the oil, gas, and coal industries. He is in favor of expanding oil exploration, including increased fracking activities. Moreover, an escalation in the Russia-Ukraine war may contribute to the oil price rally. Energy Select Sector SPDR ETF (XLE - Free Report) , which has a Zacks Rank #2, should be closely-watched for likely gains.
Tap Covered Call ETFs to Earn Higher Income
A covered call strategy is an investing technique that saves one from market selloffs to a large extent. Historically, covered call strategies have outperformed their underlying securities in bear, range-bound, and moderate bull markets but lag during strong bull rallies when securities frequently and sharply exceed their strike prices.
Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) follows the CBOE NASDAQ-100 BuyWrite V2 Index measures the total return of a portfolio consisting of common stocks of the 100 companies included on the NASDAQ-100 Index and call options systematically written on those securities through a buy-write or covered call strategy. The fund charges 61 bps in fees and yields 10.62% annually.
Semiconductors Should be in Fine Fettle
The demand for semiconductor should remain strong thanks to the AI movement and the bitcoin rally. The world's largest cryptocurrency topped $90,000, driven by optimism surrounding Donald Trump's potential crypto-friendly policies.
Trump embraced digital assets during his campaign and vowed to make the United States “the crypto capital of the planet.” Bitcoin mining drives a huge demand for semiconductors, as high-performance chips are essential for processing complex cryptographic algorithms efficiently. VanEck Semiconductor ETF (SMH - Free Report) has a Zacks Rank #1 (Strong Buy).
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How to Play Wall Street Stocks in 2025? ETF Strategies in Focus
After two years of annual gains topping 20% for the S&P 500, Wall Street experts anticipate a moderate performance in 2025. Brian Belski, chief investment strategist at BMO Capital Markets, has set a 2025 year-end target of 6,700 for the S&P 500, as quoted on Yahoo Finance. This reflects a 14% upside from Friday’s close and a 9.8% projected return for 2025. His current target for the end of 2024 stands at 6,100.
Meanwhile, Mike Wilson, Morgan Stanley's chief investment officer, issued a 12-month target of 6,500, implying an 11% gain for the benchmark index over the next year. Investors should note that if the S&P 500 is able to deliver another 20% gain in 2024, it would mark the first time since 1998-1999 that the index experienced successive years of such high growth, per Yahoo Finance.
The End of Outsized Returns?
Both strategists – BMO Capital and Morgan Stanley – suggest that the exceptional returns of the past two years may not continue into 2025. Per BMO, periods of slower growth are normal and healthy for bull markets.
BMO capital also believes 2025 will bring more balanced performance across sectors, sizes, and styles, ushering in a "normalized return environment." BMO also noted that year three of a bull market typically yields returns below the gains of the first two years and underperforms the historical average return for the S&P 500.
Rate Cuts and Broadening Market Strength
Both strategists agree that the Federal Reserve's expected interest rate cuts and strong US economic growth could broaden the rally beyond mega-cap tech stocks. Mongan Stanley’s Wilson expects continued improvement in business cycle indicators and a potential post-election boost in corporate sentiment to drive a more balanced earnings profile.
How to Play Stocks in 2025 With the ETF Approach?
Against the above-said scenario, investors can play the below-mentioned exchange-traded fund (ETF) strategies in 2025.
Broadening of the Market Rally
Optimistic economic outlook and dovish Fed should inspire investors to broaden their focus beyond the massive growth and technology stocks. Unlike the previous year's trend where investors clung to the 'Magnificent Seven' mega-caps for innovations and AI mania, the year 2025 should show a shift. Zacks Rank #2 (Buy) Invesco S&P 500 Equal Weight ETF (RSP - Free Report) is a good pick in this context.
Keep Focus on Small-Cap Stocks
Currently, the U.S. economy remains strong, with inflation nearing the Fed’s target and earnings continuing to grow. The U.S. dollar remains strong. A strong dollar provides an edge to domestic-focused companies as small caps do not have much exposure to the international market. Plus, Trump’s “America First” agenda should also continue to favor small-cap stocks (read: U.S. Dollar Hits a 1-Year High: ETFs to Gain & Lose).
Energy Sector ETFs to Gain?
President-elect Trump emphasizes energy independence, and his policies are likely to favor fossil fuels, promoting deregulation in the oil, gas, and coal industries. He is in favor of expanding oil exploration, including increased fracking activities. Moreover, an escalation in the Russia-Ukraine war may contribute to the oil price rally. Energy Select Sector SPDR ETF (XLE - Free Report) , which has a Zacks Rank #2, should be closely-watched for likely gains.
Tap Covered Call ETFs to Earn Higher Income
A covered call strategy is an investing technique that saves one from market selloffs to a large extent. Historically, covered call strategies have outperformed their underlying securities in bear, range-bound, and moderate bull markets but lag during strong bull rallies when securities frequently and sharply exceed their strike prices.
Global X Nasdaq 100 Covered Call ETF (QYLD - Free Report) follows the CBOE NASDAQ-100 BuyWrite V2 Index measures the total return of a portfolio consisting of common stocks of the 100 companies included on the NASDAQ-100 Index and call options systematically written on those securities through a buy-write or covered call strategy. The fund charges 61 bps in fees and yields 10.62% annually.
Semiconductors Should be in Fine Fettle
The demand for semiconductor should remain strong thanks to the AI movement and the bitcoin rally. The world's largest cryptocurrency topped $90,000, driven by optimism surrounding Donald Trump's potential crypto-friendly policies.
Trump embraced digital assets during his campaign and vowed to make the United States “the crypto capital of the planet.” Bitcoin mining drives a huge demand for semiconductors, as high-performance chips are essential for processing complex cryptographic algorithms efficiently. VanEck Semiconductor ETF (SMH - Free Report) has a Zacks Rank #1 (Strong Buy).