The S&P 500 index has just concluded its best month in a year and is expected to rise by 30% in 2024.
Although the gains in U.S. stocks have exceeded the most optimistic forecasts released at the end of 2023, some professional market observers still believe there is room for this upward trend to continue before the New Year bell tolls.
Scott Rubner of Goldman Sachs stated in a report to clients last week that the S&P 500 index could reach 6200 points by the end of December.
Famous Wall Street bull, Tom Lee of Fundstrat, is more optimistic: He expects the index to climb to 6300 points, although it may encounter some bumps along the way.
Lee is one of the earliest strategists on Wall Street to be bullish on stocks during the peak of the COVID-19 pandemic and has accurately predicted the rise of U.S. stocks over the past year, gaining fame and earning the title of 'Wall Street Oracle'.
Lee said in a report shared with MarketWatch: "In the short term, we may enter a 'hesitation zone', but we advise investors to buy on dips during this period."
Lee candidly admits that obstacles lie ahead. This Friday's employment report, next week's inflation data, and the Federal Reserve's rate decision later this month will bring significant uncertainty.
However, history shows that U.S. stocks have a strong upward trend in December. According to analysis by Liz Ann Sonders of Charles Schwab, the S&P 500 index has averaged a 1.3% increase in the last month of each year since 1928.
More importantly, the index closes with a bullish candle 74% of the time in December—making it the month with the highest winning percentage of all months.
An indicator measuring investor sentiment shows that enthusiasm for U.S. stocks has recently cooled. According to the latest weekly survey from the American Association of Individual Investors (AAII), only 37.1% of respondents expressed bullish sentiment, below the historical average.
But Lee pointed out that this relatively pessimistic sentiment may actually be a bullish signal.
He said, "This is a contrarian bullish signal for me; the stock market has risen in the past two weeks, while sentiment has become more bearish, which is a positive sign."
Lee added that if things don’t go smoothly, a dual safety net should help limit losses—both the 'Federal Reserve put' and the 'Trump put' should help ensure that any market downturns can be quickly bought up.
"The Federal Reserve put" refers to the Fed taking action to protect investors from market turmoil. The "Trump put" refers to the incoming Trump administration viewing the stock market as a key barometer of success and taking measures to ensure its continued rise.
The annual 'Christmas rally' period may also help boost stock prices. Callie Cox, chief market strategist at Ritholtz Wealth Management, pointed out that since 1950, the S&P 500 index has an 80% probability of rising during this period, higher than the average for all seven-day cycles throughout the year.
Based on forecasts for 2025 released in recent weeks, Wall Street strategists expect U.S. stocks to continue rising in 2025, although at a slower pace.
Professional asset management firms also seem to be pricing in more earnings. Data from Citigroup indicates that these specific investors have significantly reduced their short positions on the S&P 500 index in the futures market.
However, not everyone views the year-end rally as a foregone conclusion. Matt Miskin, co-chief investment strategist at John Hancock Investment Management, indicated that given the strong performance of the U.S. stock market in 2024, some traders may be tempted to lock in some profits.
Given that the U.S. stock market is currently very expensive relative to its fundamentals, professional fund managers may shift their funds to cheaper markets.
Miskin stated: "There may be some rebalancing effects in the market by the end of the year."
Additionally, Miskin sees a risk that Federal Reserve Chairman Powell may hint at a slowdown in interest rate cuts in 2025, which could disappoint investors.
Article forwarded from: Jin Shi Data