Two big things you need to know: First, valuations continue to look full for 2024 on the S&P 500, but our model argues for upside in 2025. Second, there’s a lot of little stuff to talk about right now. We run a few of the key updates on our high frequency indicators including those on the rotation trade, small caps, and the election.
If you’d like to hear more, here’s another 5 minutes. Now, let’s jump into the details.
ons Continue To Look Full For:
Last week the Fed kicked off it’s first post-pandemic cutting cycle with a 50-basis point move and an updated set of economic forecasts. And so we’ve taken the opportunity to refresh the stress tests that we use with our S&P 500 valuation model, which forecasts a trailing P/E for the index for Dec 2024 and Dec 2025 based on views of where PCE, 10 year yields, and Fed Funds are headed.
most generous stress test for:
While we have not issued an official YE 2025 S&P 500 price target, it’s worth noting that the various stress tests in valuation model (1 of 5 pieces of analysis we typically use in our target process) point to the S&P 500 reaching ~6,200 by YE 2025 on our EPS forecast of $268, or ~6,500 using bottom-up consensus EPS of $283.50.
A related fun fact: since the:
Moving on to Takeaway #2 – There’s a lot of little stuff worth talking about right now… here are a few of the things that are jumping out on our high frequency indicators.
rowth/Value ratio within the R:
o Our bottom line: a messy transition is leadership away from mega cap Growth appears to be underway, but we think it has the potential to stay messy for some time. We continue to see problematic positioning and valuation for the mega cap Growth trade…
o …but note that earnings sentiment (the rate of upward revisions) has been improving for the top 10 S&P 500 names relative to the rest of the index again.
o The Mag 7 also continues to display slight EPS growth superiority on consensus estimates relative to the S&P 500 ex Mag 7 despite a rapid deceleration in the former and reacceleration in the latter.
• On a related note, R:
• Wrapping up, we still see signs that the S&P 500 is decoupling from Trump, but also see reasons to worry that the political uncertainty that usually proves troublesome for stocks short-term may not be over….
o We’re keeping an eye on betting market data on the balance of power. On Friday the scenario that had moved into 1st (by a miniscule margin) was Democratic President / Republican Senate / Democratic House, while the Republican sweep had faded to 2nd. These shifts stand in contrast with recent hedge fund conversations anticipating a Trump win.
That’s all for now. Thanks for listening, and be sure to reach out to your RBC representatives with any questions.
