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Asset Watch
Tuesday, November 26, 2024
With supportive seasonality upon us, late November is when the S&P 500 typically begins its ‘Santa Clause’ rally. Moreover, as the index records a historical median return of 5% from Election Day until the end of December, there are several reasons for optimism over the next few weeks.
But while strategists debate whether the next 30+ days will bring new all-time highs, does the S&P 500’s long-term bull market still have plenty of room to run?
Morgan Stanley and Wells Fargo are the latest to up the bullish ante, with the former increasing its year-end 2025 S&P 500 price target to 6,500. The team wrote:
“A potential rise in corporate animal spirits post the election (as we saw following the 2016 election) could catalyse a more balanced earnings profile across the market in 2025.”
Similarly, Wells Fargo has a 6,500-6,700-price target and cited increased liquidity, stronger consumer confidence, rising household wealth, and how “deregulation is likely and should support profit margins.”
So, both banks see clear skies ahead in 2025.
When taking the long view, the S&P 500 produces a nice upward-sloping channel that supports a rally toward 7,000. The upper trendline connects the 2020 and 2021 monthly highs, making the next long-term resistance level above 7,000.
Consequently, if ‘animal spirits’ are realised, a potential overshoot of 6,500-6,700 could unfold under optimal fundamental conditions.
Despite several intramonth dips below the key level, the S&P 500 has closed above the 5-month moving average (the blue line) for 12 consecutive months and should make it 13 after November.
The same MA was also a key long-term trend indicator during the 2020-2021 bull market before a breakdown occurred in 2022.
If the S&P 500 trades above its 5-month MA, the long-term outlook is constructive. So, while several short-term corrections should be expected along the way, the bulls deserve the benefit of the doubt during minor sell-offs, and it will likely take a major geopolitical event to ignite another bear market.
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