The trends for 2024 and the outlook for 2025 are a reason for the market to show festive cheer and growth for the rest of the year. Not only that S&P 500 Index NYSEARCA: SPY in an earnings-driven uptrend, but the stage is set for tailwinds to develop next year and continue this trend through 2026.
SPDR S&P 500 ETF Trust today
SPDR S&P 500 ETF Trust
(As of 11/22/2024 ET)
- 52 week range
- $453.34
▼
$600.17
- Dividend yield
- 1.18%
- Assets under management
- $620.26 billion
Falling interest rates and deregulation go hand in hand with rising stock prices due to increased business investment, faster economic activity and rising earnings at the nation’s largest companies. Earnings growth is important because it provides strong prospects for rising returns on capital, including dividends and share buybacks.
The S&P 500 has been climbing a wall of anxiety over the past two years, with high inflation on one side and the risk of recession on the other. Meanwhile, despite the risks, the S&P 500 index returned to earnings growth and continued its sequential quarterly acceleration with the prospect of continuing this trend.
1) Bull market supported by cash flows and climbing a wall of anxiety
Consensus S&P 500 earnings growth forecasts for the fourth quarter of 2024 and full-year 2024 have declined from their peaks but remain in line with the outlook for faster growth, expecting more than 12% in the fourth quarter and a higher pace in the first half of 2025. Equity yields are up by single digits, with S&P 500 dividend payouts up 2.2% and buybacks up nearly 35%. in FQ2. Total equity returns are expected to remain strong in the third and fourth quarters of 2024 and accelerate in 2025, increasing by another average, providing a strong tailwind for stock prices.
2) Headwinds for the S&P 500 are weakening, tailwinds will form in 2025
Easing monetary policy constraints and deregulation are expected to create a tailwind in the economy. The full effect of Trump’s policies is unknown, as tax cuts and deregulation are offset by tariffs, but one thing is clear. The result of his policies during his first term created instability, but the trade war did not last long and businesses adapted and prospered. The economic environment at the end of 2019 and the first two months of 2020 was stable, leading to similar earnings forecasts as in 2024 and 2025, with accelerating growth expected to continue sequentially until the COVID will come out.
3) Healthy work data supports economic activity
Healthy labor markets drive the economy. Labor data has cooled from peaks during the COVID pandemic but remains strong compared to historical levels. Job creation, vacancies, employee turnover and layoffs are consistent with the 2019 or early 2020 economy, which was considered strong at the time. Initial claims are a leading indicator of the health of the labor market, and they are within very healthy levels, as is the total claims data. Initial claims are in the 220,000 range, consistent with past periods of economic growth and bull market supported by consumer spending.
4) Sustainable consumers spend big on small items
The health of the job market is evident in consumer data, which is another driver of the stock. Retail sales are growing at strong, albeit low, single digits and slightly ahead of inflation. October data showed retail sales rose 2.8%, cutting core inflation by 20 basis points as consumers focus on smaller items rather than big-ticket items.
The sustainable consumer can be seen in the results of retailers such as Walmart New York Stock Exchange: WMT, Williams-Sonoma New York Stock Exchange: WSMAnd TJX Companies New York Stock Exchange: TJXwhich report strength across all categories and show strength across all consumer price points. These companies also provided improved guidance, highlighting revenue and profitability trends that may be cautious. There is a high probability of rapid growth of indicators during the holiday reporting period. The bottom line is that holiday shopping forecasts are likely to be underestimated and will rise or exceed their values, providing additional gains for stocks.
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