ETFOptimize | High-performance ETF-based Investment Strategies

Quantitative strategies, Wall Street-caliber research, and insightful market analysis since 1998.


ETFOptimize | HOME
Close Window

The S&P 500 Defies Odds, Extends Rally With 6,000 in Sight

Bull Stock Market - Good stock buy prices up from Global economic and financial grow - stock image

The S&P 500 (NYSEARCA: SPY) defies the odds and mounting risks to continue its trend. The market broke above critical support in late September and is on track to reach bull case targets near 6,000 by the year’s end. The move was sparked by the Fed, which leans toward lower interest rates but is driven by the robust outlook for earnings. With the two forces seemingly in tandem, the 6,000 level may only be a stopping point on the way to even higher highs. 

The S&P 500's 6,000 target is derived technically and is likely low. Given the earnings and dividend growth outlook and assuming no change in the price multiple, the 15% growth expected for 2025 suggests a move to 6,600 is possible by the end of next year. 

The S&P 500 Uptrend Is Supported by Earnings Growth 

The outlook for S&P 500 earnings growth is driving the market today. Although the forecasts for FQ3 2024, FQ4, and the first half of next year have moderated since the summer, they remain strong at 4.1%, 14.2%, and 13.5%, respectively. The critical detail is that the FQ3 growth target, down sequentially from low double-digits, is a launch pad for sequential acceleration in Q4 and sustained double-digit growth in the first half of next year. Because the Fed is lowering rates and economic data remains healthy, the estimates for next year are likely too low. 

The growth outlook for dividends and share repurchases also supports the uptrend in the S&P 500. Not all S&P 500 companies pay dividends or buy back shares, but most do, and some do both. The outlook is for sustained growth in 2025 at or above the pace set in 2024, mid-single-digits for the distribution and high-single-digits for repurchases. Goldman Sachs estimates predict that 2025 share repurchases will top $1 trillion, setting a record backed by earnings growth, lower interest rates, and resilient economic conditions. 

The economic data has shown spotty weaknesses in 2024 but healthy overall, aligning with Goldman’s forecast, with stronger-than-expected job growth and sustained wage inflation near 4.0%. A slowdown in GDP growth could provide a headwind for earnings growth, but the forecasted 2% to 2.5% is still solid and likely a low estimate. 

Large Cap Tech Is Still the Focus: That May Change in 2025

Large-cap tech stock prices will likely increase in 2024 and early 2025. Still, volatility should be expected because the VIX (CBOE: VIX) remains elevated, and there are signs of technical weakness. The warning to investors is not to chase stock prices higher but to wait for price pullbacks before buying, stick with quality, and be ready to exit quickly. 

Although the rally is expected to broaden to all sectors in 2025, including strength in healthcare, materials, communications, and technology, the focus will remain on large caps and AI. The communications and technology sectors will be the second and fourth fastest-growing, which means money will continue to flow into the leading names, including NVIDIA (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), and other AI-powered giants. 

Among the risks for investors is concentration. The S&P 500 is a market-cap-weighted index, so the more money flows into tech, the more impact it will have on the market when the AI bubble bursts. The top five holdings in the S&P, including Apple (NASDAQ: AAPL), NVIDIA, Microsoft, and others mentioned, already account for 30% of the entire index, so the risk is real. Fed policy will eventually show up in the data and results, pointing to improving economic conditions and small-cap strength that could end the bull market for large-cap stocks. 

S&P 500 SPX stock chart

Stock Quote API & Stock News API supplied by www.cloudquote.io
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms Of Service.


 

IntelligentValue Home
Close Window

DISCLAIMER

All content herein is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor should it be interpreted as a recommendation to buy, hold or sell (short or otherwise) any security.  All opinions, analyses, and information included herein are based on sources believed to be reliable, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. We undertake no obligation to update such opinions, analysis or information. You should independently verify all information contained on this website. Some information is based on analysis of past performance or hypothetical performance results, which have inherent limitations. We make no representation that any particular equity or strategy will or is likely to achieve profits or losses similar to those shown. Shareholders, employees, writers, contractors, and affiliates associated with ETFOptimize.com may have ownership positions in the securities that are mentioned. If you are not sure if ETFs, algorithmic investing, or a particular investment is right for you, you are urged to consult with a Registered Investment Advisor (RIA). Neither this website nor anyone associated with producing its content are Registered Investment Advisors, and no attempt is made herein to substitute for personalized, professional investment advice. Neither ETFOptimize.com, Global Alpha Investments, Inc., nor its employees, service providers, associates, or affiliates are responsible for any investment losses you may incur as a result of using the information provided herein. Remember that past investment returns may not be indicative of future returns.

Copyright © 1998-2017 ETFOptimize.com, a publication of Optimized Investments, Inc. All rights reserved.