The S & P 500 is looking at a strong – and notably expensive – finish to the year, but there may still be room to grow from here. Heading into 2025, the broad market index is trading at a historically expensive price-to-earnings ratio of 22.3, Wells Fargo found. The last time the broad market index traded at a higher multiple going into a new year was at the end of 1999, the firm said, and that was followed by a roughly 10% decline in 2000. However, Wells Fargo analyst Christopher Harvey is sticking to his 2025 S & P 500 target of 7,007, which indicates 15.8% upside potential from Thursday’s close. The analyst is confident the S & P 500’s current lofty multiple doesn’t imply a repeat of the downturn in 2000. The S & P 500 has become “growthier” since that period, according to Harvey. “At the end of 1999, the SPX was 36% Info Tech + Comm Services; today, it is 42% not including AMZN (4%) and TSLA (2%). This shift to higher-growth sectors clearly merits higher multiples, in our assessment,” the analyst wrote in a Friday note. The market will also be able to shake off sticky inflation, Harvey said. Despite concerns that President-elect Donald Trump’s tariffs could reignite inflation, the analyst thinks rising artificial intelligence adoption and Trump’s energy policies will keep a lid on prices. Investors also shouldn’t be too disappointed by some companies’ initial soft guidance for 2025, Harvey added. “We’ve seen this movie before: Initially conservative guidance often sets up future EPS beats and rising stock prices,” the analyst said. While geopolitical uncertainties also are weighing upon “shy bulls,” Harvey forecasts global tensions broadly de-escalating under Trump. “Dangers abound, but they also did a year ago, when the SPX was at 4700,” Harvey said.
