The last inflation reading that will be released this year came out this morning. The Consumer Price Index for November showed that prices are up 2.7% this year. That’s the “headline” number. Strip out food and energy and you get the so-called “core” CPI, which is up 3.3%…
Falling gasoline prices weigh on the headline number, making it look a little better than it may really be. But the reality of the numbers doesn’t matter to the stock market. You can learn all you need to know simply by watching the reaction.
The Nasdaq is setting a new record high today, and the S&P 500 is a handful of points away from doing the same thing.
There were no great surprises, and the Fed is universally expected to cut interest rates by 0.25 points next week.
The Fed’s mandate calls for it to maintain “price stability” which has been defined as inflation at 2% or less. We are not there, and it is reasonable to ask why the Fed is cutting rates when such a move could push inflation higher. It is also reasonable to ask why the stock market is happy about this.
There should be no doubt that letting inflation run a little hot is good for stock prices. Inflation means more revenue, bigger profits, and higher stock valuations. That Virtuous Cycle could keep this party going into 2025…
But that’s going to depend on unemployment. As we’ve discussed at length – unemployment bottomed in mid-2023 and has trended higher ever since.
Rising unemployment is part of the Vicious Cycle. People who lose their job cut spending. Less spending can mean lower revenue and profit for companies, which may respond by laying off more employees. The Vicious Cycle could become a problem in 2025…
So which is it going to be?
‘Tis the Season
This is what makes the pre-Christmas such a great time of year for investors. Because this is when all the Wall Street Strategists and independent economic firms start releasing their predictions for what will happen in the coming year.
And when you get right down to it, they are all trying to answer the same question: will it be a virtuous or vicious cycle?
It is the same for your Outsider Club analysts, Christian “Hammer” DeHaemer and Brit Ryle.
About a year ago, the S&P 500 was trading at 4,700 and Wall Street investment banks were tepidly bullish on the S&P 500. Bank of America predicted the S&P 500 would rally 10% in 2024 – from 4,700 to 5,200.
Boy, did they miss the mark! The S&P 500 is nearly hitting 6,100 as I write!
You know who nailed the S&P 500s huge 2024 move?
Yep, yours truly…
On December 20, 2023, I released my Predictions for the Year 2024. I wrote:
There’s a strong case to be made that 2024 earnings will come in better than the current estimate of $246.30. And if companies are beating expectations, then stocks will trade with a higher P/E multiple.
2015-2018, the P/E ratio for the S&P 500 ran between 23 and 24. I believe 2024 S&P 500 earnings will come in better than expected, at $255 a share. At a P/E of 23, we get a high for the S&P 500 of 5,865. Increase that P/E to 24, and we get 6,120.
So there you have it: I estimate the high for the S&P 500 in 2024 to be between 5,865 and 6,120.
Now I’m not telling you this to brag, well not entirely.
I’m telling you for two reasons. One, I want you to know that when it comes to reading the tea leaves and uncovering opportunity, Hammer and I are about as good as it gets.
And two: we’ll be releasing our Predictions for 2025 for Outsider Club readers next week. This is a huge event and you don’t want to miss it. It won’t just be the S&P 500, we’ll share our predictions for oil prices, AI stocks, gold and Bitcoin, and more!
If you’re reading Outsider Club but haven’t signed up to get our emails, you can do so HERE.
And if you want to discover one of our top AI stocks for 2025, you can learn more HERE.
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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