The S&P 500 achieved another record high on Thursday, driving the benchmark to a year-to-date gain exceeding 20%. Investors are increasingly confident in the robustness of the U.S. economy and the effects of interest rate cuts and stimulus from central banks worldwide.
The U.S. economy’s strength is underscored by a growth rate of 3% over the three months ending in June and a 2.9% advancement in the current quarter. This economic resilience, in conjunction with a dovish Federal Reserve and a surprising strength in the labor market, forms the foundation of the U.S. investment narrative.
Technology stocks continue to bolster their early spring rally despite a summer slowdown. This momentum was partly rejuvenated by an optimistic sales forecast from Micron Technology, contributing to a broader enthusiasm for AI-related investments.
The S&P 500, historically prone to declines in September since 1950, is on track for a 1.3% gain for the month, potentially achieving nearly a 5% increase for the quarter.
“The consistent record highs in the stock market are notable,” commented Bret Kenwell, a U.S. investment analyst at eToro. “While there may be volatility in the coming months, the outlook remains positive as long as earnings growth remains solid and the economy continues its current trajectory.”
Kenwell also noted that while the labor market poses a risk to investors—potential weakness could impact consumer spending and overall economic health—current consumer resilience is beneficial for the Federal Reserve, the economy, and the stock market.
Recent developments in China have further strengthened the investment case. The Chinese government unveiled its most extensive stimulus package in over a decade, pledging to meet its 5% GDP growth target. This is expected to positively influence the global economy by focusing on export sector growth, stimulating manufacturing output, and moderating global goods prices.
Additional support for the global economic outlook comes from rate-cut signals from central banks in Europe, Great Britain, and Canada, alongside Japan’s unexpected policy pause after previously indicating potential rate hikes.
In the U.S., the Federal Reserve’s recent half-percentage-point rate cut, bringing the Federal Funds Rate to 4.875%, signals further reductions may follow into year-end, potentially lowering the benchmark rate to around 3% by next year, according to CME Group’s FedWatch tool.
Corporate earnings are also accelerating as the third-quarter earnings season begins. S&P 500 profits are projected to rise by 5.4% from the previous year, totaling $511.2 billion. Forecasts for 2024 indicate earnings growth of 9.9%, with a 15.2% increase anticipated for 2025.
Adam Turnquist, chief technical strategist for LPL Financial, highlighted that strong performance in the first nine months of the year might indicate further gains ahead, based on historical data. Only eight instances in the past 75 years have shown negative returns in the final quarter when momentum was strong in the initial three quarters.
Market optimism is also bolstered by a significant drop in global crude oil prices. WTI crude futures for November fell nearly $3 a barrel, potentially reducing U.S. gasoline prices to below $3 per gallon. This decline could enhance consumer spending, especially following a recent drop in consumer confidence.
Jamie Cox, managing partner for Harris Financial Group, remarked on the influence of gas prices on consumer sentiment, noting that labor market conditions will be crucial for maintaining the market’s upward trajectory.
Recent jobless claims data showed a decline, with first-time unemployment benefits filings dropping to 218,000, the lowest since mid-May. The four-week average also decreased, suggesting a steady trend in corporate layoffs.
“As long as weekly jobless claims do not show significant deterioration, the market will maintain hope for a soft landing,” noted Chris Larkin, managing director for trading and investing at E-Trade From Morgan Stanley.
As the market continues to watch closely, anticipating further economic and corporate performance data will be key in sustaining the current rally.