Market Factors: S&P 500 to complete run from 2009 low of 666 to 6666 in 2025
In this edition I’ll cover the most bullish outlook report I’ve read so far for 2025. Also: a BMO economist thinks Canadians are too pessimistic about the domestic economy and two of the most problematic trends in the modern economy are joining forces.
An image of US President-elect Donald Trump is displayed as traders and financial professionals work on the floor of the New York Stock Exchange at the opening bell on November 26, 2024, in New York City.TIMOTHY A. CLARY/AFP/Getty Images
Outlook 2025
Nine reasons to be bullish
BofA Securities equity and quant strategist Savita Subramanian sees nine reasons that the S&P 500 will complete the journey from the 2009 low of 666 to 6666 in 2025. This is 10.7 per cent higher than current levels, so yeah, BofA is bullish.
The Republican sweep of the White House and both chambers of Congress is the first bullish sign according to Ms. Subramanian. She sees deregulation and tax cuts combining with a cyclical upswing to boost growth.
Expected Federal Reserve rate cuts are reason number two.
The strategist believes that cyclical strength combined with tax cuts, deregulation and lower rates will see profit growth not only rise but continue to accelerate through the year, providing bullish reason number three.
Donald Trump’s fortress America policies are expected to reinforce the trend towards onshoring – the return of manufacturing from the emerging world back into the U.S. – and the necessary investment required should benefit U.S. businesses. That’s reason four.
Ms. Subramanian believes the U.S. economy is entering a new productivity cycle similar to the 1980s. This features the implementation of new technological tools (including AI) throughout the economy, improving profit margins for both old and new economy businesses. Reason five.
The AI “arms race” is reason six. The mad scramble by enormously wealthy tech megacaps to expand AI capacity has increased investing not only on tech equipment for data centers, but also real estate, construction and other infrastructure.
Reason seven, municipal investment, surprised me the most and will be hardest to track. The strategist believes cities will invest in infrastructure to attract either new businesses or reshoring manufacturing facilities. Reason eight, tight capacity, is related. The lack of investment in U.S. infrastructure creates pricing power for sectors like railways.
The last reason concerns fund manager positioning. Ms. Subramanian notes that fund managers are underweight cyclical sectors by the biggest amount since the financial crisis. An early cycle environment would see managers adding weight to cyclicals, driving their stock prices higher.
This is the most bullish equity market outlook I’ve seen so far. I have significant faith in Ms. Subramanian, particularly where earnings forecasts are concerned, but that doesn’t mean I’ll be blindly following her advice to buy U.S. financials, materials, real estate, utilities and consumer discretionary stocks. But, if the first earnings season next year has many more companies beating profit estimates than normal, I will have more faith in a rally because I’ve read this report.
Sentiment
Canadians too pessimistic?
BMO senior economist Robert Kavcic questioned whether Canadians are being too bearish about the domestic growth outlook in a research report this week.
Mr. Kavcic began by poking holes in the theory that lower immigration levels will be disastrous for the economy. He notes that temporary residents are not big spenders on average and inflation pressure could ease as immigration normalizes.
The economist then emphasized that the new U.S. president’s pro-growth policies might benefit domestic growth even with tariffs. Canadians might also be too worried about mortgage renewals at higher rates. He notes that renewable rates are manageable by the vast majority of mortgage holders because of previous stress tests.
The aggressive rate cuts by the Bank of Canada in 2024 should pay off with a growthy, early cycle economic backdrop in early 2025. Expected future cuts should also lead to a recovery in rate-sensitive sectors like autos and real estate.
Laval University microbiologist and Polyani award winner Sylvain Moineau was part of an international team that first discovered an anti-virus defense in bacteria known as CRISPR/Cas 9. The process has now been repurposed as a powerful gene editing too that is transforming biological and medical research.
Diversions
AI helping re-write human genome
AI worries me but CRISPR scares me. Wired magazine reports that these two (potentially) villainous forces are set to work together.
Nobody who’s seen the Terminator movies or The Matrix needs me to go over the risks of AI and the seeming inevitability that it becomes self-aware. CRISPR, a technology that can rewrite the human genome, is a different story. It is a remarkable tool with the potential to ease suffering for millions with genetically transmitted diseases.
The Wired story focuses on this happy element. Author Jennifer Doudna writes, “We have recently seen the approval of the first CRISPR-based therapy for sickle cell disease, and there are around 7,000 other genetic diseases that are waiting for a similar therapy. AI can help accelerate the process of development by predicting the best editing targets, maximizing CRISPR’s precision and efficiency.”
On the other hand, CRISPR in the wrong experimental hands is a terrifying prospect. I’d be surprised, for instance, if the U.S. and Chinese military didn’t own CRISPR machines because the prospect of genetic super soldiers is just sitting there. Longevity-focused billionaires buying them doesn’t worry me as much but I’m sure it’s happening.
The essentials
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Globe Investor highlights
The latest Reuters survey finds out what 21 portfolio managers and strategists are predicting for the TSX next year.
Turns out, the favourite exchange-traded funds in the asset allocation category are all-stock portfolios.
What’s the U.S. investor appetite these days for new Chinese firms? We’re about to find out.
Investors are clinging to crash protection despite the sizzling U.S. stock market rally.
What’s up next
The GDP report on Friday is still the big economic report on the calendar domestically. Economists expect 1.6 per cent year-over-year growth for September, and 1.1 per cent annualized expansion for the third quarter. Next Monday we’ll get the S&P Global Canadian manufacturing PMI report.
Bank earnings season starts on Monday with Bank of Nova Scotia, where profits of C$1.598 per share are expected. National Bank (C$2.568) and Royal Bank (C$3.027) follow on Tuesday. Dollarama also reports Tuesday (C$0.979).
In the U.S., third quarter GDP and personal spending for October were out Wednesday morning. Annualized GDP growth for Q3 came in as expected at 2.8 per cent and personal consumption was higher by 3.5 per cent versus 3.7 per cent expected.
ISM Manufacturing PMI will be released Monday. Economists forecast a contractionary 48 reading but I don’t know what to do with this number anymore. Historically it has been among the best indicators for U.S. corporate profits but it has been depressed for a while now while earnings surprise to the upside.
ISM Services will be reported on Dec. 4 with 55.4 expected. For earnings, only Salesforce Inc. on Dec. 3 is of broader interest.
See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)