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Now, as the President-elect takes office for the second time, it’s certain that the Trump administration will have a major say in the index’s road to 7,000. 

Buoyed by an ongoing tech boom, the S&P 500 is accelerating at a rapid pace. We saw the index break 5,000 and 6,000 for the first time ever, but can Donald Trump ensure that another milestone is passed in 2025? 

The road to 7,000 may not be as quick as the sprint from 5,000 to 6,000, according to experts. The New York Times has suggested that on average, analysts are anticipating a 10% increase for the S&P 500. 

Given that the S&P 500 gained 23% in 2024, a prospective 10% increase to 6,600 would mark a deceleration that could frustrate investors. 

On the more optimistic side of forecasts, Oppenheimer analysts targeted 7,100 points by the end of 2025, signifying a near continuation of the S&P 500’s 2024 rate of growth. 

But could the index really rally to beyond 7,000 in 2025? The answer will be influenced by the following five factors: 

Trump’s Tariffs to Have a Major Say

The economic health of the United States is likely to be heavily influenced by Trump’s plan to impose trade tariffs on international imports. 

The President-elect has repeatedly suggested that he will impose a 25% tariff on all Canadian and Mexican imports immediately, with an additional 10% tariff imposed on China. 

While there has been widespread speculation over the severity of the tariffs and whether they will be dialed down by the time Trump returns to office, the President-elect has continually reaffirmed his intentions. 

Mexican President Claudia Sheinbaum has also claimed that the imposition of tariffs would likely lead to retaliatory tariffs by the affected nations. Outgoing Canadian Prime Minister Justin Trudeau also suggested that retaliatory tariffs are likely while suggesting that American consumers would suffer a cost of living rise as a result. 

Could Inflation Impact Growth?

Although the arrival of Trump’s tariffs could boost domestic manufacturing in the United States, the higher costs of international trade will likely be passed on to the consumer, which opens the door to the return of the high inflation that burdened Joe Biden’s term in the White House. 

With US inflation rates growing to 2.7% in November, its highest gain for seven months, it’s clear that the incoming President will face a major challenge in controlling the consumer price index (CPI). 

The US economy looks very different from Trump’s first term, and the President-elect’s signature policies of tariffs, mass deportations, and tax cuts are all inflationary on the surface. However, Alan Blinder and Gordon Rentschler, professors of economics and public affairs at Princeton University have claimed that the inflationary impact of Trump’s policies would be closer to an additional 1%, rather than 5%. 

Given that the S&P 500 had thrived in the high inflation environments of 2023 and early 2024, a muted increase wouldn’t hamper the index’s growth to 7,000. 

Geopolitical Uncertainty

Last year, 34% of JPMorgan Private Bank clients claimed that they were most fearful of geopolitical risks to their investments. 

With the war in the Middle East and Europe continuing to bring widespread market uncertainty and disruption, it’s clear that the S&P 500 will be influenced by any escalations or efforts to de-escalate ongoing conflicts.  

Major geopolitical events like the Arab Oil Embargo in 1973, the Korean War in 1950, and the Watergate Scandal in 1974 have all served as examples of how the growth of the S&P 500 can be severely harmed by domestic and international crises. 

Given that 2024 was an election year for half of the world’s population, 2025 will undoubtedly bring significant geopolitical uncertainty. 

However, with investor technology becoming more sophisticated, we may see institutions evolve to protect their holdings more efficiently in the face of global events. With integrated market data provider technology offering greater resilience, US institutional investors are better equipped to mitigate risks and secure more growth through the volatility provided by market uncertainty. 

This could ultimately see more money flow into the S&P 500 even if the geopolitical climate remains volatile in 2025. 

The Relentless Rise of AI

The recent rise of artificial intelligence and generative AI tools has been a driving force for S&P 500 growth and is a key reason why markets were capable of recovering quickly from 2022’s high inflation rates and widespread tech stock sell-offs on Wall Street. 

Not only does Bloomberg predict that generative AI will grow into a $1.3 trillion industry by 2032, but analyst Howard Silverblatt has suggested that tech-related stocks were responsible for 56.5% of the S&P 500’s total return in 2024. 

Silverblatt has reasoned that the index would’ve returned just 11% in 2024 if it excluded stocks from the information technology and communication services sectors. 

In 2025, we will see the implementation phase of the generative AI take hold, and if use cases inspire would-be adopters at scale, we’re likely to see investor confidence in tech stocks flow into the new year. 

Deregulation on the Horizon

Deregulation will also play a major role in determining the growth of the S&P 500 over the year ahead. While markets reacted favorably to Donald Trump’s election victory on November 5 largely due to the prospect of deregulation fuelling widespread growth across several sectors, this particular market factor is harder to quantify for Wall Street. 

The President-elect has already announced that he plans to offer ‘fully expedited approvals and permits’ for anyone willing to invest at least $1 billion into the United States, including all environmental approvals. In practice, this would be an extremely pro-growth measure and is likely to drive far greater M&A activity throughout the United States. 

What the Trump administration’s deregulatory landscape would look like, and just how far they can push this pro-growth strategy is unclear, but it could drive a more prosperous outlook for both small-cap stocks and their larger counterparts. 

A Bridge Too Far? 

Although most bullish outlooks for the S&P 500 still indicate a rally that would fall short of 7,000, factors like geopolitics, inflation, AI innovation, tariffs, and deregulation will ultimately decide where the index will end up by Q4 2025. 

Ultimately, the direction that Donald Trump takes on his return to office will carry a profound impact on the health of US markets. With this in mind, we may begin piecing together a more comprehensive picture of the future as the President-elect’s administration begins turning the promises on the campaign trail into a reality.

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