United States Stock Rally Surges with Unstoppable Momentum

The restless move in the United States stock rally has indicated a little sign of slowdown. As the year is going to end, there is concern about declining valuations as well as a possible pullback. The index S&P 500 has witnessed its record ending session on Friday, where it gained 28% during this year; also, this is its 57^th record high closing of 2024. 

The primary reasons for this tremendous performance by the index include the incredible rise in the U.S. economy, rising expectations for the interest rate cuts, and also the positive atmosphere created after Trump’s victory over the presidential elections as well as his promises regarding tax cuts and deregulations. The market is still on the rise, crossing every expectation, but the investors are concerned that this rise might result in overheating of the market.

Market momentum

The market is now experiencing a strong momentum, where the S&P 500 index is now going to step into its 13-month-long streak, which is considered to be the major streak after 3 years of maintaining without going a 10% correction. According to BofA Global Research, these corrections are done annually on average previously. This move has continued to push the market to touch new record levels.

Carson Group’s global macro strategist Sonu Varghese has noted that the strong momentum is the reason for this growth of the market.

Strong momentum vs. doubt in the market

As the data from Reuters and LSEG says, the S&P 500 has achieved a 20% annual return five times since 1928, rising for each three months with an average of 6.3%. As of last year, the S&P 500 witnessed a rise of around 24.2%.

Momentum is the primary element of the market, says Steve Sosnick, Interactive Brokers Chief Strategist. He matches the situation with a freight train, where very few are able to challenge its pace and momentum. This statement indicates the challenge between the upward move and against the momentum.

Bullish sentiment over the market

Michael Hartnett of Bank of America has indicated that the S&P 500 has exceeded its record high of 5.3 price-to-book ratio of 2000, and it is signaling a possible risk to cross by 2025. He also noted that there is froth in most of the major markets, where the post-election move has forced Bitcoin to witness its all-time high valuation of 100,000 dollars in the previous week.

The estimated target of the S&P 500 index for the year 2025 is about 6666, which is around 9% more than the present level. Also, the November-based consumer confidence index reflects that a record of 56.4% of consumers anticipate a rise in the next 12-month period.

Market’s outlook

Yardeni warned that the extreme buoyancy among the investors regarding the market rise could also impact the market to witness a pullback; he also stated that the next decline in the market will be a great opportunity for buying. The concerns that the S&P 500 is going to witness a decline of 5% to 10% in the near term are due to the positioning crowd of investors and overvaluation, says RBC’s head of U.S. equity research, Lori Calvasina.

VIX indicates the market’s calmness

As per the current status, the S&P 500 is traded on 22.6 times forward earnings, which is more than its previous average of 15.77. In spite of the tensions regarding the high valuations, the market is currently indicating a little sign of stress. Also, the Cboe volatility index (VIX) has witnessed a decline of 12.75, signaling calmness in the market.

Previously, the VIX index ended its session below 14, similar to November, and to recover from it, it takes a total of 136 trading sessions to cross the mark of 20, which is considered a moderate level of market volatility.

Strength vs. Trade risks

The strong market moves in December are boosting the investors’ confidence. Meanwhile, the S&P 500 has experienced an average gain of 1.6% this month, which is 74% higher than the previous month, which is a bigger achievement of this year, says LPL Financial Analyst.

Strategist has cautioned that the potential trade war could impact the positive results of the policies based on tax rate cuts and deregulation.

Investors choose to stay in the market

In addition, it is seen that most of the investors have chosen to stay in the market, in spite of growing concerns over the overbought situation in the short term. It is not the favorable time to exit from stocks with just one reason that the stocks show a quick rise, words expressed by the Fundstrat Global Market’s Head Technical Strategist Mr. Mark Newton.