Don't Bet Against U.S. Market Now: Momentum Expected to Drive Year-End Gains
1min read The U.S. stock market is showing robust momentum as the year-end approaches, with the S&P 500 achieving its 57th record close of 2024 last Friday, up nearly 28% for the year. This rally is fueled by a strong U.S. economy, expectations of lower interest rates, and anticipated tax cuts and deregulation under President-elect Donald Trump.
Steve Sosnick, chief strategist at Interactive Brokers, emphasized the market's strong momentum, likening it to a freight train that few want to oppose. Historical data supports the risk of betting against such a market, with the S&P 500 logging consecutive annual gains of 20% or more five times since 1928, and typically continuing to rise in the following months.
Despite the rally, some analysts are cautious. Michael Hartnett of Bank of America pointed out that the S&P 500's price-to-book ratio has surpassed its March 2000 peak, suggesting a potential risk of an overshoot in early 2025. He also noted signs of market froth, such as bitcoin surpassing $100,000 post-election.
Ed Yardeni of Yardeni Research highlighted bullish sentiment indicators, like the November Consumer Confidence Index, which showed a record 56.4% of consumers expecting higher stock prices in the next year. He warned that extreme sentiment could be a contrarian indicator, suggesting a near-term pullback might offer buying opportunities.
Lori Calvasina of RBC expressed concerns about crowded investor positioning and elevated valuations, predicting a potential 5% to 10% pullback for the S&P 500, which currently trades at 22.6 times forward earnings, above the historical average of 15.77.
However, broader market indicators show little sign of immediate worry. The Cboe Volatility Index (VIX) dropped to a near five-month low of 12.75, suggesting market calm may persist. Historically, once the VIX closes below 14, it takes an average of 136 trading sessions to rise above 20, indicating moderate market volatility.
December's historical performance also bolsters investor confidence, with the S&P 500 averaging a 1.6% gain and finishing higher 74% of the time, according to LPL Financial.
