A pessimistic scenario implies an economic recession in the next year. At the moment, it’s hard to project anything other than a “soft” recession, with EPS dropping -10% from 2024 values. For comparison purposes, the COVID pandemic resulted in a -32% decline in EPS in 2020 compared to 2019, and the average P/E ratio for the S&P 500 was 15.3 at the through. We won’t project a global pandemic style event, as that would be too extreme and “alarmist”. Instead, we’ll use some “garden variety” recessionary assumptions.

2025 S&P 500 Earnings per Share: $216 ($240 x 90%)

Valuation Multiple: 19 (-2 standard deviations, for the past decade)

SPY Median Price Target: $410 (Q3 2025)

Price Range (+/- 1 STD): $464 - $379

CAGR: 0%

ODDS: 30%

Note: out of all Wall Street banks, J.P. Morgan’s 4.200 target for year end 2024 most closely aligns with this view.

The 30% probability weighting we have assigned for this scenario is based on multiple studies: J.P. Morgan (35%-45% probability), Goldman Sachs (25% probability), the New York Fed (61% probability, with the caveat that it has been elevated since Jan 2024 and is purely based on the yield curve).

Additionally, a recent BofA Global Fund Manager Survey found that 76% of participants think a “soft landing” is most likely in the next year. This would be the equivalent of the cumulative odds for the first two scenarios that we have presented.