Is The Sun Setting On America?

After last week’s bruising. The major averages roared back this week finishing with solid gains. Led by the DOW up 1,550 points or 3.7%, the S&P 500 gained 170 points or 2.92% while the NASDAQ increased 478 points or 2.5%. So much for the sun setting on the economy and markets.

With the sun setting on the Biden administration, the damage done to America is laid bare for all to see. I doubt history will be kind to the outgoing administration as its short comings and missteps were legion. Mistakes that were shamefully covered up by the mainstream media in the last 4-years. Destroying what was left of their credibility. Despite the damage to the republic the sun still shines on the markets, the economy and earnings.

4^th Quarter GDP Tracking 3 Percent

The latest estimates for 4^th quarter GDP are running 2.1% to 3%. Defying the naysayers with the sun setting on their doom and gloom predictions. Bank of America’s latest 4^th quarter GDP estimate was revised up .3% to 2.1%, the lowest of the bunch today. Goldman Sachs revised their estimate up .1% to 2.6%. The Atlanta Fed GDPNow model came in unchanged at 3%. While there is always something to worry about. Lower interest rates, solid earnings, a good but not great economy and an incoming republican administration. Should all prove supportive of stocks this year. Thanks to the Atlanta Fed for the chart.

Because It’s About The Money

The latest earnings update from FactSet Research. Shows the S&P 500 off to a strong start as the earnings reporting season gets under way. At the end of the 4^th quarter earnings growth was expected to be about 11.9%. Historically companies tend to beat estimates by about 5.4%. So, the probable earnings growth rate for the 4^th quarter was reasonably expected to be about 17%. A very solid number. While still very early. Fourth quarter earnings reporting for the S&P 500 is off to a strong start. With companies beating the expected number, and by a larger margin than historical experience or 5.4%. Sending the index to its best earnings growth rate in 3-years. Strong earnings growth in the financial sector led the way. In contrast, the energy sector struggled out of the gate.

Revenues, while positive and looking at a 17^th consecutive quarter of growth. Haven’t shined as brightly as earnings so far, up 4.7% to begin the 4^th quarter reporting season. Looking ahead, analysts expect year-over-year earnings growth rates of 11.6% during the first 2 quarter of 2025. Total earnings growth for this year is currently running 14.8%. Given a supportive environment and an incoming republican administration. I would expect this number to be revised higher. Something that should help bring down slightly stretched valuations as the S&P 500 P/E ratio clocked 21.5 at the end of last year. Thanks to FactSet for the chart.

Caleb

Last Week’s Post: Irrational Exuberance and the Equity Risk Premium

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