Stocks Climb the Wall of Worry
Despite concerns about the presidential election, inflation, interest rates, housing, geopolitical escalations, valuations, the yield curve, and an overbought market, U.S. stocks have climbed the “proverbial wall of worry” to trend higher in 2024. Not only are stocks higher despite the bear’s concerns, but they are off to their best start ever in a presidential election year, with the S&P 500 Index up a healthy 22% and the tech-heavy Nasdaq higher by 23%. That said, should investors buy stocks here, or be concerned that the run is over?
Can the Animal Spirits Continue?
Below are five reasons to be bullish into 2025, including:
Big Tech: Strong Earnings and Forward Expectations
Though big tech stocks like Meta Platforms (META), Arm Holdings (ARM), Alphabet (GOOGL) have enjoyed robust gains in 2024, those gains are likely to extend into 2025 because of robust expectations. Forward EPS expectations are one of the key ingredients of the Zacks Rank and are the best predictor of stocks moving forward. Several big tech stocks like the ones mentioned above enjoy a Zacks Rank #2 (Strong Buy).
Image Source: Zacks Investment Research
Meanwhile, Wall Street estimates for Nvidia (NVDA), the most important AI company, suggest the company will more than double its EPS in for full-year 2025.
Image Source: Zacks Investment Research
Finally, companies like Tesla (TSLA), which reported EPS last week, benefit from the newly “dovish” Federal Reserve monetary policy stance. Tesla guided auto growth to 25% in 2025, smashing estimates of 16%. Tesla’s regulatory credit revenue plunged 17% quarter-over-quarter, but earnings beat expectations by a wide margin due to a dramatic improvement in cost of goods sold (COGS). TSLA rewarded the bulls with a 22% jump last week.
Bullish Call Activity
Sharp, deep-pocketed investors are accumulating massive amounts of call options in big tech names like META and AAPL. Because big tech stocks comprise such large market caps and are critical to growing industries like AI, strength in these names will equate to strength in the general market. Investors should get a better sense of AI, cloud, and big tech growth in general when Google reports earnings tomorrow after the close.
Seasonal Tailwinds
Seasonality dramatically favors the bulls into year-end. According to Ryan Detrick of Carson Investment Research (@RyanDetrick) November, December, and January are historically the best three months of the year using data going back to 1950. Meanwhile, November has been green in eleven of the past twelve years.
Image Source: Carson Investment Research
Relative U.S. Equity Positioning
Despite the rally in U.S. Stocks, relative U.S. equity position (versus the world) is significantly underweight compared to the past two presidential election cycles (according to Seth Golden @sethCL). In other words, domestic markets have room for more upside if investors become more bullish.
Image Source: Seth Golden
Risk-on Industries are Strong
Risk-on market areas are moving higher, while risk-off areas are moving lower. For example, bitcoin proxy MicroStrategy (MSTR) is crushing the S&P 500 Index year-to-date. At the same time, energy was slammed today after the geopolitical situation in the Middle East showed signs of cooling off.
Image Source: Zacks Investment Research
Bottom Line
Though stocks are enjoying a historically strong presidential election year, all signs suggest the bull market will continue into Q4.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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