As the S&P 500 index nears new all-time highs, the outlook for the end of 2024, the upcoming year, and the next decade raises concerns.
US Stocks: What Lies Ahead? As 2024 winds down, investors are closely monitoring the US stock markets, speculating about what the final months of the year, 2025, and the next 10 years may hold.
The S&P 500 Index has delivered stellar performance this year, but questions remain regarding the sustainability of its growth, the Federal Reserve’s monetary policy, and the impact of the Trump administration, which will return to the White House in 2025.
Should we brace for a strong year-end, a challenging 2025, and potentially a "lost decade"?
S&P 500 Valuation: A Sustainable Rally?
The S&P 500 has surged 28% in 2024, a remarkable gain reminiscent of the dot-com bubble era. Much of this growth has been fueled by the "Magnificent Seven"—Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. These tech giants have soared on artificial intelligence hype, attracting investors eager to capitalize on a tech-driven future.
However, current valuations raise concerns. The Shiller PE ratio, which compares share prices to inflation-adjusted earnings, stands at a lofty 38—a level only exceeded during the Internet bubble of the late 1990s. That period, of course, ended in a dramatic market crash.
While corporate earnings have risen by 75% since the pandemic began and are projected to hit $250 by the end of 2025 (with an annual growth rate exceeding 17%), the market is trading at about 24 times these earnings—an unusually high multiple. This valuation could be tested by unpredictable monetary policy and a macroeconomic environment shaped by a stronger US dollar.
For the rally to continue, earnings growth must extend beyond the Magnificent Seven to include more traditional sectors, reducing reliance on technological innovation alone.
The Fed’s Monetary Policy and Trump’s Return
The Federal Reserve’s actions remain pivotal to the market’s trajectory. In September, the Fed indicated plans to cut interest rates by 100 basis points by the end of 2024, of which 75 basis points have already been implemented. Additional cuts of 100 basis points are expected in 2025, with a shift to more neutral rates by 2026.
However, if inflation proves more persistent than anticipated, the Fed may pause rate cuts or even consider hikes, unsettling investors.
The return of Donald Trump to the White House introduces another layer of uncertainty. A stronger US dollar under his administration could hurt the earnings of multinational companies, as a rising dollar typically makes US goods and services less competitive abroad. This could particularly impact the Magnificent Seven and other technology and industrial firms reliant on international markets.
Investment Bank Forecasts
Major US investment banks hold a cautiously optimistic outlook for 2025 but highlight potential long-term challenges.
JPMorgan Chase has set an S&P 500 price target of $6,500 by the end of next year, reflecting a 6% increase. However, the longer-term perspective appears less rosy. For instance, Goldman Sachs predicts the S&P 500 will achieve an annualized growth rate of just 3% over the next decade.
Original article published on Money.it Italy 2024-12-09 18:03:44. Original title: Azioni USA, le previsioni per i prossimi 10 anni
