On December 8, 2024, Wall Street is evaluating the sustainability of its stock market gains, with the S&P 500 soaring 28% this year, poised for consecutive annual increases exceeding 20%, a feat last achieved in 1998.
Major banks like JPMorgan Chase, Morgan Stanley, and Goldman Sachs forecast the S&P 500 will reach 6,500 by the end of 2025, reflecting a 6.7% rise from Friday’s close of approximately 6,090. Barclays is more optimistic, projecting 6,600, while Bank of America and Deutsche Bank predict 6,666 and 7,000, respectively.
Despite high interest rates and geopolitical tensions, analysts believe President-elect Trump’s pro-growth policies will benefit the market. However, concerns linger about the market's ability to maintain momentum amid potential trade wars and inflation data set to be released soon.
The Russell 2000 index, focusing on small-cap stocks, is nearing its first record close in three years, with November gains nearly doubling those of the S&P 500. Over 220 S&P 500 stocks have reached 52-week highs recently, indicating a broadening rally that could bolster market resilience.
Tech stocks, particularly the 'Magnificent Seven' (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla), have been crucial to this year’s gains, driven by enthusiasm for artificial intelligence. However, Goldman Sachs projects a meager 3% annual growth for the S&P 500 over the next decade, while Bank of America anticipates flat to 1% growth.
Concerns about the longevity of the AI boom and a potentially stronger dollar under Trump's administration could hinder larger companies' earnings growth. Analysts expect a 17% jump in S&P 500 earnings next year, but skepticism remains regarding the feasibility of these projections.
As the S&P 500 trades at 22 times its expected earnings, above its five-year average of 20, and the information technology sector at around 30 times, investors are still searching for value in a market dominated by high-priced stocks. Fed Chair Jerome Powell has indicated a cautious approach to rate cuts, adding to market uncertainty.