Here is latest investment strategy update from Sam Stoval, Chief Investment Strategist at the Center for Financial Research and Analysis (CFRA). Please reach out to us if you would like to discuss it.
Overall Outlook
After setting its 36th all-time high on October 28, the S&P 500 slipped into a very minor pullback of 5.1% on November 20. After the subsequent bounce, the S&P 500 now stands less than 1% below a new 37th high.
If the current decline represents the full extent of the market’s “reset” after recovering from this year’s earlier 19% sell-off, historical patterns suggest the S&P 500 will likely rally over the next three months before experiencing another decline of 5% or more. However, history provides guidance, not guarantees.
Encouragingly, the previous minor reset does not imply that a deeper one lies around the corner. Indeed, another pullback (a decline of 5.0% to 9.9%) is what is typically experienced. This prior performance would also point to a favorable finale and offer high hopes for a Santa Claus Rally and a positive January Barometer, two indicators popularized by The Stock Trader’s Almanac.
Economic Update
Action Economics (AE) reminds us that it expects a continued slowdown for U.S. job growth, forecasting a 20k nonfarm payroll rise over the October and November period. This includes a 30k increase in November after a 10k drop if government layoffs are attributed to October.
AE expects the workweek to hold at 34.2 for a sixth month in November, leaving another flat hours-worked figure. AE also predicts a 0.3% hourly earnings gain, which translates to Y/Y rates of 3.6% in November and 3.7% in October, versus a 38-month low of 3.6% in July 2024. If shutdown assumptions are applied to October household data, the jobless rate should drop to nearly 4.4% in November after a pop up to 4.7%. Initial claims have remained tight and consumer confidence has ebbed, but producer sentiment is firm.
Fundamental Update
The fourth quarter earnings reporting period is fast approaching. Q4 earnings per share (EPS) are forecast to rise 6.7% Y/Y, according to S&P Capital IQ consensus estimates, after jumping 15.0% in Q3.
Eight sectors are forecast to post advances, led by Information Technology (22.5%), Communication Services (5.6%), and Financials (4.7%).
For full-year 2025, S&P 500 EPS are projected to rise 11.0% Y/Y, followed by a 13.4% increase in 2026 and 14.6% growth in 2027.
Full-year 2025/2026 gains for the S&P MidCap 400 and S&P SmallCap 600 are now seen at +0.9%/+18.7% and +10.1%/+17.2%, respectively.
In addition, the S&P 500 Growth Index will likely post a 22.1% increase for 2025 and a 16.9% gain in 2026.
Meanwhile, the S&P 500 Value Index should post a decline of 1.5% in 2025 but then bounce back with a 10.8% rise in 2026.
Finally, the S&P 500’s P/E on forward 12-month EPS stands at 23.2x, a 19.5% premium to its 10-year average.
Technical Update
What a difference a week (or two) can make in the market, according to Lowry Research, a CFRA business.
With a small cluster of positive changes, the body of evidence now reflects the initial return of demand.
Perhaps the most significant recent event was the Lowry Thrust registered on November 28. This signal, which focuses on volume and points, reflected a surge in buying activity across a wide swath of the market from a weak underlying condition. History also shows that when a Thrust happens, the returns over the next one, three, six, and 12 months are favorable. As a result, investors should have confidence to buy dips or stay the course in a rising trend as the bull market is likely not over.
Sam Stovall, CFP
Chief Investment Strategist
This report was prepared by CFRA and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and there is no guarantee of future results. All indices are unmanaged and may not be invested in directly. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
The opinions voiced in the material are for general information only and are not intended to provide specific advice or recommendations for any individual.
See attached PDF for additional disclosures.
CFRA is not affiliated with LPL Financial, Independent Advisor Alliance, or Bass Financial Management.
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