S&P500: The Bull’s alive in 25?! What it takes, a Checklist
We are nearing Xmas, other religious holidays, and the year end. It’s that time of the year many people and investors make lists. Thery make Naughty and nice lists, new year’s resolution lists, top college football teams, top sports plays to watch from 2024 and top books to read lists. Investors as we’ve said for quite some time, cyclically since the October lows in 2022 and again in October 2023, we are in a bull market for US equity assets as defend by the S&P 500.
A few months back and pre-2024 Presidential election, we shot a video where I postulated that the S&P500 could get to an optimistic 7000 by year end 2025 as a stretch goal. That would be a continuation of the bull market in 2025 with the year in the markets and economy mirroring 2017 Trump 1.0. However, for now, my model gives 6660 as a likely high point for the markets in the coming year. I don’t like to revise targets, because the model I run doesn’t move around that much even way out in the future.
With holidays here, I am making my own list for Oak Harvest and my followers. It’s a checklist of how things looked in 2016/17 and how they look into year end 2024 and what’s needed for the “Bull to remain alive and even thrive in 25”. I’m not ranking these in order of importance right now, but you might be able to guess where our team would go based on previous videos and our commentary.
- Federal Reserve- In 2026 and 2017 the Fed was raising interest rates at the short end that they control. Today, they are in a rate cutting cycle which is biased to continue in 2025.
- Nominal 10-year market interest rates – In 2016 they were lower into mid summer and rose by about 1.25% into year end post-election where they stayed stable to lower in 2017. Year to date, 10-year rates were lower into mid-summer and have risen about 1% off their lows. Many strategists on TV say they go up in 2025 due to deficits and tax cuts, I disagree.
- Inflation expectations – was rangebound in 2016 at 1.25-1.75% and slightly higher in 2017. Year to date, real time inflation expectations have been 2-2.4%.
- Real growth was range bound in 2016 and 2017, even with the proposed tax cuts in 2017. Year to date, real rates are 1.5-2.25% and that number looks to be heading lower not higher in 2025.
- The dollar was range bound in 2016 and had a strengthening move into year end post-election and in its normal seasonal strong time period when most everyone in the world wants to own dollars, then it went on a weakening trend in 2017 even as our economy grew faster than almost ever country in the world. This year? Near the exact same moves. Weaker the first half, stronger since last summer into year end. 2025? Time will tell but this is high high on my list of indicators to watch for 2025. DJT wants a lower dollar for stronger trade position of the US. Here’s the overlay of the DXY then and now.
A weaker dollar would help S&P earnings as a stronger dollar has held back many multinationals’ EPS growth in 2024. Think the likes of Pepsi and Coke or even Nike, NCD or Starbucks with large percents of their business done outside the USA.
Moving on to volatility measures. Most people I talk to recall the DJT 1.0 era as super volatile due to his late night or late afternoon tweets when only the American markets were open that caused ST volatility. That isn’t reality. The first year of Trumps presidency was the calmest market and lowest vol year ever. Stock vol, bond vol, almost every asset class one can think of had lower not higher vol in 2017. Great for investors, bad for traders who thrive on vol.
On the policy front there were taxes, tariffs and China that were front of mind throughout 2017. Each one of these turned out to be a non-event to most markets to a positive. In fact, as far as the best performing asset classes in 2017? Chinese equities were one of the best performing global assets in 2017 at the exact same time DJT was talking tariffs and trade crackdowns. I’ll take Alibaba, ticker BABA, as the poster child for Chinese equities. Here’s an overlay of BABA in 2016/17 with 2024 year to date.
Sideways most of 2016 with a huge Sept/October rally, only to give up that whole move in 4-8 weeks into year end 2016. Then what happened to Alibaba’s stock in 2017? It more than doubled. It gained $100/ in less than 12 months from between $86-88/s to over $180/s.
What’s BABA’s stock done in 2024? Near the same thing as 2017. Next to nothing for 9 months, then a massive 55%+ rally into early October, but now right back down to $84-88/s. Will 2025 repeat 2017 in Chinese equities? I don’t know but it and Chinese stimulus plans are on the checklist of things to watch.
But Chris there is chaos in the Middle East, that will hurt stocks in 2025. I’ve heard the call. Investors, can you find me a year that there hasn’t been chaos in the middle east. I had to Google it and the answer I got back was 1977 was the last “peaceful” no conflict year in that area of the world. I recall there being fewer conflicts under DJT 1.0 than the last 4 years? If I’m wrong, I will correct myself. Please send me the data so I can share it.
And investors, I end my list on what drives stocks over time, earnings and marginal return on capital. In 2016 S&P 500 earnings grew 9.27% off a down year in 2015. TS&P 500 earnings then grew 16.21% in 2017. In the world of De ja vous, S&P 500 EPS are looking to grow between 9.1-10% in 2024 according to FactSet data, nearly the same as 2016 growth rate. Here’s a link to their great work on earnings.
In 2017, earnings grew at 16.21%. Current analyst estimates have 2025 EPS up about 14.1% to $275/s, a little short of what they grew in 2017 into the trump tax plan and tariffs. 14% earnings growth in 2025 to $275/s + would certainly be a good thing.
Investors, until proven otherwise, my suggestion to you, trade or invest similarly to Trump1.0 for at least the early stages of Trump 2.0. Why? Because it’s the same people doing the same things, and therefore the outcomes tend to be very similar. A similar outcome to 2017 for 2025 would be S&P500 7000. Here’s a little checklist to keep an eye on throughout the first half of the year comparing Trump 1.0 to Trump 2.0.
My current model comes up short of that lofty number, but as I pointed out last week, it is possible. It takes long term nominal interest rates getting to near or below 4% by year end 2025, or a return to historically low volatility like 2017. And While I admit, those are aggressive numbers, as we first discussed months ago, they are not out of the realm of possibilities for 2025 given stable job markets and low unemployment, lower interest rates, stable to lower taxes in 2026, and low supply of sellers in stocks who look to push out tax events into 2026.
Investors, it’s remains a bull market, and unless you’ve been a Perma bear like so many on TV networks, that remains a good thing going into the holidays and in the first half of 2025.
Chris Perras
CFA®, CLU®, ChFC®
Chief Investment Officer, Financial Advisor
Chris is a seasoned investment professional with over 25 years of experience working with some of the most successful money management firms in the world. Chris has made it a point in his career to adapt as the market landscape changes, seeking to utilize the appropriate investment strategy for a given market environment. His transition from managing billions of dollars at the institutional level to helping individuals and families retire is guided by a desire to see first-hand the impact he is making in the lives of clients at Oak Harvest.
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