As markets enter the fourth quarter of the year with extreme euphoria, some analysts recall how this period is statistically full of surprises. What to expect from the S&P 500?
The fourth quarter of 2024 could prove crucial for the future of the S&P 500. Although the market has benefited from earnings growth and the AI revolution, fears of a recession and potential disappointment regarding future earnings remain important risks.
The last quarter of the year is the most complex for equity markets, not only because it represents a period of technical adjustments by traders ahead of reporting and the start of the new fiscal year, but also because the results of this period will be decisive in understanding whether expectations for 2024 have been met or not. Basically, everything could be called into question.
An Overvalued Market?
With a YTD (year-to-date) performance of around 20% and a quarterly gain of 5% in the third quarter, the S&P 500 appears to be on apparently solid ground.
- S&P 500 1D
- Source: Baha.com
For this very reason, one of the most discussed indicators in this context is the price-to-earnings ratio (P/E). Currently, the value of this index is around 24, significantly above the historical average of around 16. So is the S&P500 overvalued? By historical standards, the answer is yes, but other factors must be taken into account. Overvaluation is always relative: an asset that discounts large future gains is only considered overvalued if those gains do not materialize.
S&P 500 earnings are expected to grow 15% in 2025. This expectation has supported positive sentiment in the market so far, especially with the boost from artificial intelligence (AI, which has boosted corporate earnings at leading tech companies.
Will the market live up to expectations? It depends on "recession risk" and the "AI bubble"
Despite strong earnings and growth prospects, the market has not yet completely ruled out the possibility of a recession. This is evident by looking at the VIX, known as Wall Street’s fear index, which has seen a 30% increase in the last quarter. In an environment where corporate earnings have outperformed, one might expect greater comfort, yet the fear of an economic slowdown remains present.
That’s because, in reality, much of the S&P 500’s outperformance has been attributed to the explosion of interest and investment in generative artificial intelligence (Gen AI). Since October 2022, this theme has dominated the market, pushing the technology sector especially higher, with giants such as Alphabet Inc. (GOOG), Microsoft Corporation (MSFT) and Nvidia (NVDA) among the main beneficiaries.
So, the focus of the experts for the fourth quarter will certainly be on the ability of these companies to maintain the trend of earnings growth and their forecasts for the future. Any earnings miss or disappointing guidance from tech giants like Google, Microsoft, or Nvidia could have a significant impact on the entire market.
Original article published on Money.it Italy 2024-10-02 15:28:23. Original title: Le previsioni per l’S&P500 nel quarto trimestre 2024
