The S&P 500 has been enjoying a bull market since October 2022, rising nearly 70%. Quincy Crosby of LPL Financial expects the rally to continue through 2025. There is no need to worry about election volatility. Earnings are solid, and a soft landing seems likely.
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The stock market has experienced a bull market over the past two years.
The S&P 500 bottomed in October 2022 and has risen nearly 70% since then.
It is no exaggeration to say that the economy is on much better footing than it was two years ago. Although there are still concerns about rising prices, the headline inflation rate has improved markedly from the 8.2% level that consumers were experiencing at the time.
LPL Financial
Now, with elections and geopolitical tensions causing instability, the question is whether this winning streak will continue into a third year and into 2025.
Quincy Crosby, chief global strategist at LPL Financial, believes it will.
“There are compelling reasons for these bulls to capitulate to the ever-lurking bears, especially with an accommodative Fed, solid economic fundamentals, and an earnings outlook for stable growth,” Crosby said in a note. No,” he said.
Three reasons for entering the third year
Bull markets don’t die of old age, Crosby said. Typically, external factors such as economic recessions, rising interest rates, poor performance by American companies, and geopolitical shocks stop the stock market from rising.
Fortunately, Crosby doesn’t seem to have any room for such concerns.
As companies begin reporting third-quarter results, it’s clear that the biggest companies in the market are reporting strong earnings. And earnings season appears to be off to a strong start, with major banks like JPMorgan Chase & Co., Goldman Sachs & Co., and Wells Fargo all beating consensus profit estimates.
The Magnificent Seven drove much of the S&P 500’s returns this year, contributing 34% of the index’s total return. Currently, the market is slowly expanding and more companies are entering the market.
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Investors are increasingly pulling money out of the technology sector and into areas such as real estate, consumer defense and utilities, according to Morningstar category data.
Analysts expect S&P 500 companies to report earnings growth of 4.2% in the third quarter. Crosby expects corporate profits to increase throughout 2025 due to strong operating margins and increased consumer spending.
Earnings from non-tech companies are also catching up. The remaining 493 companies are expected to have double-digit profit growth in the first quarter of 2025, said Jack Ablin, chief investment officer at Kusett Capital Management.
Crosby is also optimistic that the Federal Reserve will be able to achieve a soft landing that will strengthen the economy and encourage consumer confidence. Goldman Sachs and prominent economists have lowered the probability of a recession over the next year to just 15%, the average probability of a recession in any given year. And Crosby believes that if the labor market shows signs of weakness in the coming months, the Fed will cut rates more aggressively to stimulate the economy.
September retail sales reported a 0.4% increase last month, beating the consensus estimate of 0.3%, another indicator of a strong economy.
Although Fed Chair Jerome Powell has warned that the path to lower inflation could be “stiff,” Crosby believes the economy is heading in the right direction.
Finally, historical precedent is on the side of the bull market. The two-year bull market that followed World War II continues into its third year.
Crosby said fears that the election would impact markets are also overblown.
“The focus is on election year ‘uncertainty’ rather than market historical ‘certainty’.”
Once the election is over, markets end the year at their most comfortable seasonally,” Crosby wrote.
Although stocks tend to be more volatile in the three months leading up to Election Day, Buchbinder notes that the S&P 500 index ends the year higher 83% of the time. Additionally, markets often show gains in the fourth quarter after election results provide stability. This means that these seasonal trends support the continuation of the bull market.
