Weekly Comment

Expectations for the S&P 500 in 2024 and 2025 reflect strong growth, with significant gains projected across multiple sectors. 

S&P 500 Outlook for Q4 2024 

As is customary, JP Morgan will kick off the corporate earnings season in mid-January. However, it is notable that estimated earnings for the S&P 500 in the fourth quarter remain below initial expectations. Despite this decline, the index could still achieve its highest year-over-year (YoY) earnings growth rate in three years, currently estimated at 11.9%. This growth would bring the full-year 2024 earnings increase to 9.4% YoY. 

If confirmed, this figure would represent the strongest YoY earnings growth since Q4 2021. Additionally, seven out of the eleven sectors in the index are projected to report YoY growth, with Finance, Communication Services, Technology, Consumer Discretionary, Utilities, and Health Care leading the way. Conversely, four sectors are expected to see a YoY decline in earnings, with Energy being the only one forecasted to post a double-digit drop. 

What About 2025? 

Looking ahead, analysts anticipate robust earnings growth for the S&P 500 in 2025, projecting nearly 15% YoY growth, well above the 10-year historical average of 8%. Interestingly, companies outside the “Magnificent 7” group (Google, Amazon, Microsoft, Apple, Tesla, Meta, and Nvidia) are expected to show significant improvement, with earnings growth estimated at 13% for 2025. 

Key Takeaways 

The evolution of the Q4 earnings season and the start of Q1 2025 will be crucial. Investors have displayed considerable optimism in recent months, betting on the persistence of a favorable environment for the corporate sector. 

Expected annual earnings growth for the S&P 500 in Q4 2024 

Source: Facset – Earnings Insight 

The November inflation report could confirm a new interest rate cut.

The Consumer Price Index (CPI) for November showed a 0.3% increase, marking a slight acceleration after four consecutive months of 0.2% rises. On an annual basis, overall inflation stood at 2.7%, while core inflation (excluding food and energy) advanced by 3.3%, both figures in line with expectations. 

Among the main factors driving this result was the increase in the housing component (shelter), which contributed nearly 40% of the monthly rise. Additionally, food prices rose by 0.4%, and the energy sector recorded a modest 0.2% increase. 

Excluding food and energy, other components such as housing, used cars, furniture, and healthcare showed significant increases, while the communication index was one of the few to register a decrease. 

In this context, market consensus predicts that the Federal Reserve will implement a 25 basis point rate cut during its next meeting. This move reaffirms the Fed’s commitment to economic stability in an environment of moderate inflation and a strong labor market. 

Expectations for the benchmark interest rate 

Fuente: CME 

Annual change in inflation and core inflation   

Fuente: US Bureau of Labor Statistics 

Essential steps to understand the challenges, benefits, and strategies of a well-planned retirement. 

In a world where life expectancy continues to rise and traditional pension systems are evolving, planning for retirement has become a crucial priority to ensure financial stability and maintain the desired lifestyle in later years. 

Retirement is not just a common financial goal—it’s a universal necessity. Whether you dream of traveling, dedicating time to your passions, or simply enjoying time with your family, having a solid financial plan is essential. Here are some key points to consider: 

• Increased Longevity: Growing life expectancy means planning for decades of retirement. 
   

• Shift from Pensions to Personal Savings: As traditional pensions decline, personal savings and investments have become more important than ever. 
   

• Key Strategies: Diversifying investments, maximizing contributions to plans like a 401(k), and maintaining an emergency fund are critical steps to ensure financial stability. 

Facing challenges such as market volatility or rising healthcare costs requires a disciplined and consistent approach. The good news is that it’s never too late to start. Every step toward structured planning can make a meaningful difference. 

Retirement is widely considered the top financial goal. 

Source: JP Morgan – Apollo  

The wait is over. After four years, the Federal Reserve has cut its benchmark rate by 50 base points, bringing it to a range of 4.75% to 5.00%. This move could signal a new direction for markets in the coming months. However, for investors with a long-term strategy, these events are only part of the noise.

Here’s a look at the historical performance of markets following the first rate cut:

• Positive performance in the past: Since 1974, the S&P 500 has shown positive returns 80% of the time in the 12 months following the first rate cut, with an average return of 15%. Over three years, the average return is 12%.
• Caution in recession scenarios: If the rate cut is accompanied by a recession, as happened in 2001, 2007, and 2019, the S&P 500 fell by an average of 8% in the following 12 months. Over three years, it remained stable.
• More optimistic scenario: In an environment of rate cuts without a recession, markets have generated an average return of 22% in the first 12 months and 15% over three years.

In summary, while there is still debate about whether we will see a recession, it’s important to remember that extending your investment horizon increases the probability of achieving your goals.

Future Returns of the S&P 500 After a Rate Cut

• Past performance does not guarantee future results.

Source: Morningstar

Future Returns of the S&P 500 After a Rate Cut + Recession

• The data excludes easing cycles in 1974, 1980, and 1981, as recessions were already underway when the Fed made the first cut. Past performance does not guarantee future results.

Source: Morningstar

With inflation figures moving closer to the target and a noticeable slowdown in job growth, the Federal Reserve (Fed) decided to lower the benchmark interest rate by 50 basis points (bps). This significant move had not been seen since the emergency rate cuts during the COVID-19 pandemic in 2020. Outside of those emergency situations, the last time the Fed made a cut of this size was in 2008 during the global financial crisis. The market had expected this decision, though there was some debate over whether the cut would be 25 or 50 bps. As a result of this change, the federal funds rate range is now 4.75–5.0%. 

The Fed’s statement noted that recent indicators show the economy continues to grow at a steady pace. Job growth has slowed, and the unemployment rate has inched up slightly but remains low overall. Inflation is progressing toward the Fed’s 2% target but remains somewhat elevated. In the future, when considering rate adjustments, the Fed will carefully assess incoming economic data, evolving conditions, and the overall balance of risks. 

Additionally, the Fed updated its economic forecasts, making some adjustments for the remainder of this year and next year. They now expect the federal funds rate to average around 4.4% by the end of 2024, down from the 5.1% projected in June, suggesting another potential 50 bps cut. By 2025, they project the rate to be around 3.4%, lower than the previously estimated 4.1%. Economic growth expectations remain steady, near 2% for this year and 2025. However, the unemployment rate forecast has been revised up to 4.4% (currently at 4.2%) from the 4% estimated in June. For 2025, the unemployment rate is expected to stay at this level. 

Finally, the core inflation forecast (excluding volatile items like food and energy), measured by the Core PCE, is expected to decline to 2.6%, down from the previous estimate of 2.8%, and to reach 2.2% by the end of next year. 

Update of FED Indicators (September vs. June)

Source: Federal Reserve

We know that September has historically been a challenging month for the markets. While this month tends to be tricky, understanding the reasons behind this trend will allow you to be better prepared. Here are some key insights: 

• Market Seasonality: September has proven to be the weakest month for the stock market. Since 1928, the S&P 500 has averaged a performance of -1.2%, closing with gains only 44.3% of the time. 
• Portfolio Rebalancing: With the year approaching its end, many institutional investors adjust their portfolios, which can increase selling pressure. 
• Post-Vacation Volatility: The return of traders after summer often brings increased volatility. 
• Economic Data and Geopolitics:  This month, significant economic data and monetary policy decisions are expected to influence market sensitivity. Moreover, geopolitical tensions remain present, adding uncertainty.  

In a nutshell, while September can be volatile, staying informed will help us navigate with greater confidence. 

We encourage you to continue monitoring the market and preparing for any scenario. 

Historical monthly average performance 

DJIA – Dow Jones (1897), S&P 500 (1928), Nasdaq (1971) y Russell 2000 (1987) 

Source: Marketwatch – Dow Jones Market Data 

Discover the main conclusions from recent market movements and how they might impact on your investments.

August presented us with a rollercoaster in the markets, starting with an initial correction followed by a fast recovery. However, behind this volatility lie important signals we need to consider:

Soft landing on the horizon:

• The economy continues to show strength, but with signs of slowing down, particularly in the labor market. Nonetheless, the economy is not at risk of significant deterioration. A soft landing remains the most likely scenario.

Fed preparing to cut rates:

• With economic growth moderating, inflation decreasing, and the labor market cooling, it’s likely that the Fed will reduce interest rates by 25 base points at its next meeting on September 16.

Solid Corporate Earnings but with Challenges:

• S&P 500 companies reported strong earnings for the second quarter (+8% year-over-year), with interesting growth beyond the “Magnificent 7” (+4.6% year-over-year excluding this block of companies) for the first time in five quarters, but future prospects have moderated.

Volatility Ahead:

• Negative seasonality, economic and geopolitical uncertainty, as well as upcoming elections, could increase volatility in the markets.

How can you navigate this volatile environment?

Maintaining a long-term investment strategy is crucial to overcome market storms.

Stay informed: This is the survey outlook for the upcoming US elections

Source: RealClearPolitics

Let’s understand market corrections and why they happen.

A market correction is defined as a decline of 5-10% in a bull market. Although these events may seem like a sudden storm, they are a natural part of market cycles.

Corrections can be triggered by various factors, from geopolitical tensions to disappointing corporate reports. These adjustments allow asset prices to align with their true values and prevent the formation of bubbles, while also offering new opportunities for investors.

How can you effectively navigate a market correction?

• Stick to your investment plan: Ensure your actions align with your financial goals, risk tolerance, and investment horizon.

• Diversify your portfolio: A diversified portfolio can help mitigate the risks associated with corrections. Spreading your investments across different asset types reduces exposure to market fluctuations.

• Stay informed and avoid panic: While it’s important to stay updated on market news, don’t let sensational headlines affect you. Keep calm and focus on your long-term goals.

In a nutshell…

Panic selling that may arise from a correction, along with the potential loss from not investing on the market’s best days, has significantly impacted investor performance over the past 50 years.

Panic selling can weigh on the long-term performance of a portfolio.

Source: Raymond James – Juliusbaer

With nearly 90% of the Q2 reports already submitted, we share the key takeaways of the season:

EPS Growth:

• Earnings Per Share (EPS) exceeded initial expectations with a year-over-year increase of +8.3%.
• 79% of companies reported EPS above expectations, surpassing the long-term average of 75%.
• The EPS growth for the S&P 500 was positive, even excluding the Mag-7, for the first time in five quarters, with a +4.6% year-over-year growth.

Uneven Performance:

Despite an overall solid season, some indicators fell short of expectations.

• The proportion of companies that beat sales estimates in the U.S. dropped to 48%, well below the long-term average of over 60%. In its year-over-year variation, sales grew +5%.
• This could put pressure on profit margins in the second half of the year.

Regional Performance:

• U.S. companies showed better performance in terms of EPS, with an 8% year-over-year growth, compared to +1% in Europe.
• However, the proportion of companies exceeding sales estimates in Europe (51%) was higher than in the U.S. (48%).
• This performance aligns with fluctuations in exchange rates.

Sector Results:

• The Materials and Consumer Staples sectors showed weaker results.
• In contrast, Consumer Discretionary, Healthcare, Financials, and Utilities experienced double-digit EPS growth.
• Amazon was the biggest driver of growth in the Consumer Discretionary sector; without Amazon, growth in this sector would have dropped by 6% year-over-year.

Future Perspectives:

• Despite challenges such as high interest rates and slowing employment, the overall resilience of the economy may continue to drive corporate earnings.
• An annual growth of 10.3% is expected for this year, slightly below the initially estimated 10.8%.
• For the next year, earnings growth is projected to be close to 15%, which seems somewhat optimistic for a scenario of economic slowdown.

S&P 500 Earnings Growth and S&P 500 Excluding the Magnificent 7

Source: JP Morgan