Stock Market Roars in November: A Strong Finish to the Year Ahead?
The S&P 500 has had an exceptional year, with November being the best month of 2024, rising 5.7% on a capital-appreciation basis and nearly 6% assuming reinvestment of all dividends. This strong performance has raised the average gain from all Novembers since 1980 to 2.22%. Moreover, the market has broadened, with a sector rotation away from traditional growth areas towards cyclical, rate-sensitive, and defensive sectors.
A Strong Economy Supports the Market
The U.S. economy has sustained mid-year strength into the third quarter, with GDP growth of 2.8%. Consumer spending, particularly for durable goods, has been a highlight, and federal government spending has also been high. While the economy has shown some signs of deceleration, growth remains steady, and the Fed has room to cut rates going forward.
Consumer Spending Remains Resilient
Personal consumption expenditures increased 3.5% in the third quarter, up from 3.0% in the second quarter. Spending on goods rose 5.6%, nearly double the second-quarter rate, while durable goods spending rose a sharp 7.6%. Although annual inflation growth has declined, consumers appear more willing to buy goods at stable or lower prices.
Earnings Growth Expected to Continue
Heading into 2025, our forecasts for S&P 500 earnings from continuing operations have been raised to $276, from $265. We expect growth momentum to continue, driven by sectors such as Energy, Materials, and Industrials, which are forecast to bounce back to growth exceeding their long-term averages. Key large sectors, including Communication Services, Information Technology, Healthcare, and Discretionary, are also expected to sustain double-digit growth.
Interest Rates and Bond Yields
The Fed has commenced its rate-cutting cycle, with two cuts so far, and we expect short-term yields to move lower from current levels. Long yields are expected to widen their relative premium to short yields over time. Our fixed income strategy anticipates one additional quarter-point rate cut in 2024, at the December FOMC meeting, and two or three additional quarter-point cuts in 2025.
Domestic and Global Markets
Many indices are at or near all-time highs, with the S&P 500 delivering a total return (with dividend) of 28.1% at the 11-month 2024 mark. The Nasdaq has maintained slight leadership over the broad market index, while Wilshire Large Cap Growth has maintained its premium to Wilshire Large Cap Value. We believe stocks can continue to rise from here, given positive fundamentals in GDP and earnings, and a strong technical pull into year-end 2024.
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