There are three reasons for the acceleration in 2025. The long and short of it is that the economic data remains solid, if a little spotty; Consumers remain resilient, and there is broad-based demand globally. This means for investors that sector rotation is still a factor affecting market activity today, so volatility can remain high. Nevertheless, the rally in stocks will continue to diversify away from technicals into a wide range of stocks and sustain growth. S&P 500 NYSEARCA: Spy Next year.
1) The economy is solid, underpinned by healthy labor markets
The U.S. economy started the year slowly, growing only 1.3% in Q1, but grew faster than 3% in Q2 and maintained a high 2.0% pace in Q3, and the forecast for Q4 is the same. According to Q4 GDP should come in at around 2.5% GDPNow tool And the upward trend in the estimate could exceed that forecast due to: goods and services, consumer spending, and business investment driving growth. The latest reading on consumers shows that spending remains solid and is improving Retail sales Up 2.8% year-on-year in October and outpacing inflation.
Labor markets reflect economic strength. The labor market has cooled significantly from its peaks but remains solid relative to historical norms. The latest readings show job creation, job openings, initial jobless claims, and total jobless claims all trending in line with late 2019 and early 2020 data, which was good. The US economy was accelerating at the time, pushing the S&P 500 to new all-time highs. The worst news is the index of leading indicators, which has been negative for two years. The index reading is a red flag but has been mitigated by cooling labor data and further post-COVID normalization reducing readings.
2) Consumer strength is broad-based in all categories except big-ticket items
Q3 earnings reports from retailers were generally good. Not all were great, and some contracted compared to last year, but growth and good performance are trends. Reports from Walmart NYSE: WMT, TJX Companies NYSE: TJXAnd Williams-Sonoma NYSE: WSM Corresponding to this assessment, provides a broad-based view of consumer trends. Each performed well and cited strength in all categories.
Guidance for Q4 is also positive and suggests these trends will continue. The NRF is forecasting 2.5% to 3.5% increase during The holiday seasonis lower than last year and affected by a shorter season, but given the trends it is very cautious. Walmart, for one, is forecasting its Q4 to be at least 100 basis points better and will likely beat its guidance.
Delta Airlines NYSE: Dal Acts as a bellwether of the global economy as its operations serve the needs of businesses and consumers at home and abroad. Trends are positive in 2024, with international demand positive, continued system-wide growth and positive guidance. Guidance for Q4 2024 and F2025 is for continued growth with 3-4% capacity growth, leading to mid-single-digit topline profit next year. Fuel costs, another indicator for the global economy and the S&P 500, are expected to rise more slowly than revenue, pushing up trading margins. Wider margins and improved profitability are positive catalysts for stocks.
3) The S&P 500 is at a critical juncture
The S&P 500 is trending higher and at a critical juncture. A move to a new high in January signaled a 6,100 price target, where the market is today. This level may provide a top for the market, but it may not last long if it does. Bullish indicators include candlestick action, MACD, and Stochastic, which suggest a new high will be set soon. A move to a new high would put the S&P in uncharted territory with nowhere to go but up. In this case, it could sustain a rally till the end of 2025 and gain another 1,300 points along the way.
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