The S&P 500 is on track to rally through the end of the year, driven by factors such as earnings growth, cash flow, and capital returns. Let’s take a closer look at why the market is poised for a strong finish in 2024 and what to expect in 2025.
Reasons for Market Rally
The trends and outlook for 2024 suggest that the S&P 500 is in an earnings-driven uptrend. The stage is set for tailwinds to develop next year, sustaining the positive momentum into 2026.
Economic Factors
- Falling interest rates and deregulation are boosting stock prices.
- Business investment is increasing, leading to accelerated economic activity.
- Earnings growth of major companies is fueling a robust outlook for capital return growth.
Bull Market Trends
The S&P 500 has been climbing a "wall of worry" with concerns about inflation and recession. However, the index has returned to earnings growth and is expected to maintain this positive trend.
1) Bull Market Supported by Cash Flows
Consensus forecasts for Q4 2024 and full-year earnings growth show an accelerating pace. Capital returns are growing, with dividends up 2.2% and repurchases nearly 35% in FQ2. Expect strong tailwinds for stock prices in the coming quarters.
2) S&P 500 Headwinds Ease
Easing monetary policy headwinds and deregulation are paving the way for economic tailwinds. Trump’s policies have created volatility, but businesses have adapted and thrived. Expect continued earnings growth in 2025.
3) Healthy Labor Market
Strong labor data supports economic activity, with job creation and turnover at healthy levels. Initial claims are trending within a positive range, indicating a robust labor market that fuels consumer spending.
4) Resilient Consumers Drive Spending
Consumer spending is a key driver for stocks, with retail sales growing and outpacing inflation. Retailers like Walmart, Williams-Sonoma, and TJX Companies report strength across all categories, signaling a positive holiday shopping season.
In conclusion, the market is primed for a strong finish in 2024 and continued growth in 2025. Factors such as earnings growth, consumer spending, and labor market health are contributing to the positive outlook for stocks. Investors can expect a Santa Claus rally as the year comes to a close.