This time of year, immersed in the festive climate, is ideal for taking stock. Better to do it in the heat of Buenos Aires than in the cold of New York. In the main financial capital of the world, the trees of the traders Equity stocks performed better than fixed income stocks. So, the S&P 500 and the Nasdaq rose 27% and 33% YTD, while towards the end of 2023 the 10Y was trading at 3.88% and today it is already at 4.59% (+71 bps).
Two major events marked 2024 and will define the course of the world economy in 2025. As happens in most cases, these were related to politics: monetary and traditional. On the monetary policy side, on September 18, the Federal Reserve lowered the policy rate by 50 bps, putting an end to the famous higher for longer —maintaining high rates for a long time—which lasted almost a year and two months.
As for traditional politics, the presidential elections were marked by a campaign with several unexpected moments. Trump suffered an attack that left him injured in his right ear, while Joe Biden decided to leave the race after multiple episodes where he failed to show clarity, including the first presidential debate.
Finally, donald trump He ended up running against Democratic candidate Kamala Harris and won the election. The key to 2025 will be understanding how far he will try to advance with his campaign promises, which would not only have an impact on the real economy, but could also condition the Fed’s actions.
The Federal Reserve is already working with more uncertainty regarding what Trump’s possible policies may be. At least that’s what Powell said in the round of questions at the press conference after the rate decision. This greater uncertainty could break the union that the board in 2024. In fact, something was already seen in the last meetings.
The governor of the Fed, Michelle Bowmanvoted against September’s decision to cut rates by half a percentage point, preferring a smaller cut.
For its part, Beth Hammackpresident of the Cleveland Fed, opposed the taper in December, arguing it was not necessary. This dynamic is likely to deepen in 2025.
Beyond this, Trump’s incentives to break with the current scheme and implement a completely different plan are unclear. Biden left an economy that grew 3.1% quarterly annualized in Q3, and growth of 3.1% is expected in Q4. On the other hand, although with some inertia, inflation shows a downward trend.
The big events of 2024 are already behind us. In these days, some less relevant economic data will be known, so the outcome of this stage seems to be clear. To anticipate the next chapters, we will have to wait for the premiere in 2025. As of January 20, Trump will assume the presidency, and it will be crucial to observe what changes he manages to implement and in what magnitudes.
For example, in a simplified way, it could be assumed that lower taxes and deregulation would favor economic growth, while import restrictions would have a negative effect. Therefore, it will be decisive to analyze how much progress is being made on each front to evaluate the net impact of the new proposals.
The forward outlook for the S&P 500 is cautiousgiven that it is close to its maximums, both in nominal and real terms, and its PE ratio (an indicator that compares the price of shares with the profits of companies) exceeds historical averages.
Currently, the PE and the adjusted PE are at 27.2 and 24.9, respectively, levels that are above the historical averages of the last 5 years (21.4), 10 years (19.5) and 24 years (17.9). Notably, since 1990, adjusted PE has only exceeded these three averages in two historical moments: the dot-com crisis and the COVID-19 pandemic. This does not mean anything in particular and history does not necessarily have to repeat itself. At the moment, we do not see a clear catalyst for an index correction.
However, it is important to pay attention to these indicators, to the macro and to the evolution of companies linked to artificial intelligence, especially Nvidia, the third most relevant company in the S&P 500 by its market capitalization, after Apple and Microsoft, and greater relative importance in the 2024 rally.
PPI analyst.
Source: Ambito
David William is a talented author who has made a name for himself in the world of writing. He is a professional author who writes on a wide range of topics, from general interest to opinion news. David is currently working as a writer at 24 hours worlds where he brings his unique perspective and in-depth research to his articles, making them both informative and engaging.
