Putting “fun” back into low- and middle-income Americans’ budgets could be years away with most of their income barely covering the surge in costs for bare necessities, economists said.
Even with annual inflation last month cooling to the lowest level since February 2021 and wages rising faster than inflation, low- and middle-income Americans are just barely covering their essentials, which include groceries, shelter, utilities and gasoline, economists say.
That’s because when inflation slows, it only means prices aren’t rising as quickly, not that prices are declining. So, Americans continue to pay higher prices for everyday needs.
Low- and middle-income Americans were hit disproportionately harder than their higher-income peers because essentials account for a larger share of their budgets, and their discretionary spending, or spending on nonessential items like dining out, vacations and entertainment, is only just recovering, economists say.
“For a very large share of Americans, the bottom 60% are spending more on essentials than before the pandemic,” said Michael Pearce, Oxford Economics deputy chief U.S. economist. “The burden is hardest among the lowest income but also touches middle income. Spending patterns of low-income Americans will take years to recover.”
‘No financial progress’
Middle-income Americans’ purchasing power, after being sharply eroded during the 2021-2022 inflation shock, just recently moved above 2019 levels, according to the monthly Primerica Household Budget Index (HBI). HBI assesses whether families can get ahead financially or if they may fall behind based on the affordability of everyday necessities needed to manage their homes and changes in their earned income.
HBI in August was 102.2%, up from a low of 86.7% in June 2022 when inflation peaked at a 40-year high of 9.1%, and at the highest level since February 2021. Households are neither better nor worse off than they were in January 2019 when HBI was 100%, so the August reading means middle-income Americans were doing slightly better than they were in 2019 and much better off than when they were underwater in 2022.
However, “had the inflation wave not happened, the HBI would be about 112.5%,” said Amy Crews Cutts, economic consultant to Primerica. “This difference explains a lot about low consumer sentiment that even though conditions have improved, households have made almost no financial progress in 5.5 years of hard work.”
A Gallup poll this month showed 52% of Americans said they and their families are worse off today than they were four years ago. “Inflation likely underlies Americans’ perceptions that the economy is poor, even against a backdrop of generally low unemployment, steady economic growth, and record stock and housing values,” it said.
How many years will it take to return to normal?
It depends on wage growth and whether prices of essentials like gas or rent tumble, Pearce said.
The last time low-income Americans’ discretionary spending fell this much, which was during the Global Financial Crisis of 2007-2008, it took five to 10 years for spending patterns to return to previous levels, he said.
“And the reason was gas prices fell,” Pearce said. Global oil prices fell by about 70% between 2014-16, which pushed pump prices sharply lower and helped low-income Americans catch up.
“It’s harder to see some revolutionary cost saving (like that) on the horizon,” he said.
Sales and treats
Christa Engel, 58, continues to financially juggle.
To cope with sharply higher prices, Engel, the manager of a Dunkin’ store in Chicago, said she and her husband not only cut back on “treats” but still buy whatever they can on sale.
“For me, since we have two incomes, it’s not that bad,” she said. “I do try to get stuff on sale as much as possible… like crackers, frozen pizza. We have to cut back on eating out and nonessential small treats.”
Money for essentials must come from somewhere, so people end up “cutting out fun, not saving or spending some of their savings,” said Cutts. “Inflation blew up their budgets. I’m saddened because this is a boom economy, and we want to see people’s economic life quality rising because people have jobs, raises, and companies are doing well. What we’re seeing is a lot of weakness. It shows how powerful inflation is.”
Air conditioning, watering the garden and visiting family were “luxuries” Amy Aaroen, 63, cut back on last summer.
“We have not used the central air this year as much as in the past to keep the bill down,” said Aaroen, who is married and lives in Beloit, Wisconsin. “We were careful when watering the garden so we could keep the water bill down… It (also) costs me about $50 just to go visit my family who are only 1.5 hours away or two and three hours away. I feel like the economy had us traveling less and visiting family less.”
Will upcoming holiday spending be affected?
Low and middle-income consumers will probably still be bargain-hunting this holiday season, analysts said.
“We are continuing to see inflation’s impact on the middle-class consumer,” said Adam Davis, managing director at Wells Fargo Retail Finance. “Discretionary spending on larger ticket items is down, which could indicate holiday budgets may tighten, and certain consumers might even trade down on items, with many actively looking for bargains.”
Aaroen says that through belt-tightening during the year, “we’ve somehow managed to keep a budget that will probably not affect our coming holidays too much. We have 11 grandchildren and usually spend $25 to $30 on each of them. And we will probably this year as well. We may need to use the credit card though.”
And “yes, we will definitely see family for the holidays,” she said. “But not as often in between.”
Read the full article HERE.
Gold prices reached record highs and are up over 32% in 2024 so far
Gold prices reached new record highs this week amid uncertainty surrounding the upcoming election and the rising U.S. national debt.
Prices for gold futures have risen over 32% year to date and more than 38% in the past year and have set a number of new all-time highs in the process.
Gold reached new records of $2,738 on Monday and $2,760 on Tuesday, before paring back some of those gains and closing at $2,749 on Thursday.
Investors have turned to gold as a safe haven from a variety of geopolitical risks in the past year, including the ongoing conflicts in the Middle East and Ukraine. Uncertainty surrounding the direction of U.S. economic policy after the election, as well as the Fed’s rate cutting plans and long-term trajectory of the growing national debt have also bolstered investment in gold.
“What we’re really seeing is gold continuing to be viewed as a quintessential hedge against inflationary pressures along with the safe-haven demand and fund inflows, gold continues to be extremely well supported,” said David Meger, director of metals trading at High Ridge Futures.
“Uncertainty leading into the U.S. election is one additional pillar of support for the gold market, given the unease that the market may be feeling going into the election,”
ANZ said in a note that, “Concerns around the rising U.S. fiscal debt outlook is strengthening the investment case for gold.”
The federal government’s budget deficit topped $1.8 trillion in fiscal year 2024, which concluded at the end of September. That amounted to the third-largest budget deficit in history and trails only the FY2020 and FY2021 deficits that occurred amid elevated federal spending due to the COVID pandemic and related economic disruptions.
Deficits are projected to continue to rise in the years ahead, with the nonpartisan Congressional Budget Office (CBO) projecting that annual budget deficits will surpass $2 trillion a year starting in FY2030 and will be nearly $2.9 trillion just four years later.
Both Vice President Harris and former President Trump have released economic plans that are projected to cause the deficit to widen at a faster pace over the next decade than what would occur under the CBO’s projection. The CBO baseline has projected that the debt-to-GDP ratio, which compares the debt held by the public to the size of the U.S. economy, will break a record set in 1946 during the next four-year presidential term.
Continued federal spending and deficits as well as the Federal Reserve’s plan to address stubborn inflation have caused yields on another safe haven for investors, U.S. Treasurys, to rise despite the expectation the central bank will cut rates again in November.
Bob Haberkorn, senior market strategist at RJO Futures, said in a Reuters report Wednesday that while gold is “going to have a hard time moving higher given where yields are headed,” though he added that gold could reach $2,800 an ounce as early as the end of this week on safe-haven demand.
Read the full article HERE.
Nine out of 12 districts report flat or declining activity
The Federal Reserve’s latest Beige Book survey of conditions across the country continued to paint a weak picture, with nine out of 12 regional district banks reporting flat or a slight decline in activity.
Most districts reported declining manufacturing activity and consumers were reported to be on the hunt for bargains.
Housing activity continued to expand across the country, but uncertainty about the path of mortgage rates was keeping some homeowners on the sidelines.
The Beige Book is designed to give Fed officials a feel for conditions on the ground ahead of their next interest-rate policy meeting, set for Nov. 6-7.
Recent Beige Books have painted a weak picture and economists are a bit puzzled.
Analysts at LHMeyer, an independent monetary-policy research firm, noticed that there was a disconnect in September between what the Beige Book reported and how officials actually described conditions during their closed-door meeting.
While the Beige Book for September “sounded downright grim,” Fed officials told their colleagues that “their business contacts were optimistic about the economic outlook, though they were exercising caution in their hiring and investment decisions.”
“Given that Chair Powell has indicated that Fed officials are placing increased importance on the Beige Book and other anecdotal readings, the soft readings provide reason for the Fed to continue to ease monetary policy,” Bostjancic added.
The grim nature of the Beige Book reports hasn’t been matched by national economic data.
For instance, retail sales were stronger than expected in September, and the U.S. economy added 254,000 jobs in the month.
After all, the Atlanta Fed’s GDPNow tracking estimate sees the economy accelerating in the July-September quarter above the prior quarter’s 3% annual growth rate.
According to the latest Beige Book, employment did increase slightly and layoffs remained limited. Wages continued to rise “at a modest to moderate pace.”
The survey said that inflation continued to cool in most districts. Prices of some food products, like eggs and dairy, did rise sharply.
Consumers were seen as increasingly sensitive to high prices.
“In contrast to the sturdy employment and retail-sales reports for September, the anecdotal readings from Fed’s Beige Book depict little economic growth across much of the country,” said Kathy Bostjancic, chief economist at Nationwide.
Most economists continue to expect the Fed will cut rates by a quarter percentage point at their next meeting.
Read the full article HERE.
Gold and silver showed no sign of slowing their rise on Monday as investors continue to pour into precious metals.
Gold futures touched fresh records, rising as much as 0.8% to hover near highs of $2,750 per ounce. Silver futures gained more than 3% before paring gains, briefly topping $34 per ounce, the highest level in 12 years.
The two precious metals have outperformed the broader markets, with bullion rising 26% year to date and silver gaining 35% during the same period, compared to the S&P 500’s (^GSPC) gain of 19% since the start of 2024.
Gold purchases by central banks, which hit a record in the first quarter of 2024, have been one of the biggest drivers of the precious metal’s rise this year. BofA analysts estimate gold has surpassed the euro to become the world’s largest reserve asset, second only to the US dollar.
Investors have also flocked to physically backed gold exchange-traded funds, with inflow up three months in a row, according to the World Gold Council.
“I think it’s the declining inflation expectation and also the rotation of assets that tend to perform well with a more dovish Fed,” Phil Streible, Blue Line Futures chief market strategist, told Yahoo Finance on Monday morning.
The strategist sees gold reaching $2,850 by the end of the year.
Meanwhile, silver surged higher after gaining more than 6% on Friday. JPMorgan analysts cited sentiment at the recent London Bullion Market Association/London Platinum and Palladium Market conference, with attendees forecasting an average year-ahead price of $45 per ounce for the grey metal.
“This bullish view is driven by a sense that silver is undervalued vs gold, less crowded, and supported by multifaceted, versatile demand applications,” wrote JPMorgan analysts on Friday.
Silver is used across different industries, from electronics to fuel cells in automobile components and solar panels. The analysts see uncertainty ahead for the metal if former President Donald Trump were to win the presidential election.
“We are bullish silver ourselves, though for this strong silver outperformance to eventuate, we likely need to see industrial metals prices continue to rally in 2025, something that could get complicated under a Trump presidency and a hard line on tariffs early next year, despite Chinese stimulus,” said the note.
Read the full article HERE.
Buying of the precious metal reflects rising interest in alternatives to the dollar-based financial system
Something strange has happened to the price of gold over the past year. In setting one record level after the other, it seems to have decoupled from its traditional historical influencers, such as interest rates, inflation and the dollar. Moreover, the consistency of its rise stands in contrast to fluctuations in pivotal geopolitical situations. Gold’s “all-weather” characteristic signals something that goes beyond economics, politics and higher-frequency geopolitical developments. It captures an increasingly persistent behavioural trend among China and “middle power” countries, as well as others. And it is a trend that the west should be paying greater attention to.
Over the past 12 months, the price of an ounce of gold on international markets has increased from $1,947 to $2,715, a gain of almost 40 per cent. Interestingly, this march up in price has been relatively linear, with any pullback attracting more buyers. It has occurred despite some wild swings in expected policy rates, a wide fluctuation band for benchmark US yields, falling inflation and currency volatility.
Some may be tempted to dismiss gold’s performance as part of a more general increase in asset prices that, for example, has seen the US S&P index gain about 35 per cent in the past 12 months. Yet that correlation itself is unusual. Others will attribute it to the risk of military conflicts that have seen so many innocent civilians lose their lives and livelihoods, together with massive destruction of infrastructure. Yet the price journey suggests that there may well be a lot more going on.
Consistent foreign central bank purchases have been an important driver of gold’s strength. Such buying seems not just related to the desire of many to gradually diversify their reserve holdings away from significant dollar dominance despite America’s “economic exceptionalism”. There is also interest in exploring possible alternatives to the dollar-based payments system that has been at the core of the international architecture for some 80 years.
Ask why this is happening and you will normally get an answer that mentions a general loss in confidence in America’s management of the global order and two specific developments. You will hear about America’s weaponisation of trade tariffs and investment sanctions, together with its reduced interest in the rule-based, co-operative multilateral system that it played a pivotal role in designing 80 years ago.
You will also hear about Russia’s ability to continue to trade and grow its economy despite some of the country’s banks being ejected in 2022 from Swift, the international system that governs the vast majority of cross-border payments. It has done this by creating a clunky trade and payments alternative system that involves a handful of other countries. While inefficient and costly, this allowed Russia to bypass the dollar and maintain a core set of international economic and financial relations.
Then there is the aspect related to the conflict in the Middle East where the US is viewed by many as an inconsistent backer of both fundamental human rights and the application of international law. This perception has been amplified by how the US has shielded its main ally from a response to actions widely condemned in the international community.
What is at stake here is not just the erosion of the dollar’s dominant role but also a gradual change in the operation of the global system. No other currency or payment system is able and willing to displace the dollar at the core of the system and there is a practical limit to reserve diversification. But an increasing number of little pipes are being built to go around this core; and a growing number of countries are interested and increasingly involved.
What has been happening to the gold price is not just unusual in terms of traditional economic and financial influences. It also goes beyond strict geopolitical influences to capture a broader phenomenon which is building secular momentum.
As it develops deeper roots, this risks materially fragmenting the global system and eroding the international influence of the dollar and the US financial system. That would have an impact on the US’s ability to inform and influence outcomes, and undermine its national security. It is a phenomenon that western governments should pay more attention to. And it is one where there is still time to course-correct, though not as much as some would hope.
Read the full article HERE.
Gold prices hit a record high in Asian trade on Monday, extending a rally from last week as uncertainty over the U.S. election and anticipation of Israel’s retaliation against Iran fueled safe haven demand.
Other precious metals also advanced, with silver in particular racing to a 12-year peak, while industrial metal prices, specifically copper, also firmed following an interest rate cut in top importer China.
Metal prices rose even as the dollar remained close to its highest levels since early-August, as traders penciled in a slower pace of interest rate cuts by the Federal Reserve.
Spot gold rose 0.4% to a record high of $2,732.86 an ounce, while gold futures expiring in December rose 0.6% to $2,747.70 an ounce.
Gold, silver prices surge on safe haven demand
Precious metal prices were buoyed chiefly by increased safe haven demand, especially as reports over the weekend showed Israel was planning a strike against Iran over a missile strike earlier in the month.
Hostilities between Israel and Hamas and Hezbollah also continued, pointing to little deescalation in Middle East tensions.
Traders were also biased towards safe havens before the U.S. presidential elections in early-November, with analysts at ANZ stating that the race was “too close to call.”
Recent polls showed Donald Trump and Kamala Harris almost neck-and-neck, although prediction markets largely favored a Tump victory.
The safe haven demand helped precious metals firm past signs of resilience in the U.S. economy, which saw traders positioning for a slower pace of rate cuts by the Fed. The Fed is widely expected to cut rates by 25 basis points in November.
Silver futures rallied 3.1% to $34.328 an ounce- their highest level since September 2012, while platinum futures 0.6% to $1,031.15 an ounce.
Copper rallies as China cuts interest rates
Among industrial metals, copper prices rose following a slightly bigger-than-expected rate cut by top importer China.
Benchmark copper futures on the London Metal Exchange rose 1.2% to $9,746.0 a ton, while December copper futures rose 1.2% to $4.4450 a pound.
The People’s Bank of China cut its benchmark loan prime rate slightly more than expected on Monday, the latest in a flurry of stimulus measures from Beijing.
But earlier signals on stimulus had somewhat underwhelmed traders, given that Beijing did not provide key details on the timing or scale of its planned measures.
This saw copper nursing steep losses over the past week.
Precious metal surpassed its prior record of $2,708.70 an ounce set in late September
Gold futures hit a fresh record as geopolitical tensions simmer and economic uncertainty mounts, and they look set to climb even higher.
Continuous gold futures on the New York Mercantile Exchange rose 0.75% to $2,727.90 a troy ounce in European midday trading, having reached as high as $2,729.30 earlier in the session.
The precious metal has been on a tear in recent days, climbing more than 3% in the past week and finally surpassing its prior record of $2,708.70 an ounce set in late September.
“Gold is likely to perform well over the long term, driven by several key trends: the ongoing debasement of the U.S. dollar, the precarious fiscal situations of many Western nations, and the global desire for a store of value independent of other assets and institutions,” said Ryan McIntyre, managing partner at asset manager Sprott.
Physical demand for gold—as opposed to investor demand—has likely been weak, given its elevated price levels and strong recent gains, Macquarie analysts said in a note. Instead, hedge funds have driven most of the action. Global gold exchange-traded funds added an additional 5% over September to bring gold assets under management to a month-end peak of $271 billion, with North American funds contributing the most, according to a recent report from the World Gold Council.
Challenging fiscal outlooks across developed markets are presently a key structurally bullish market feature for gold—and the upcoming U.S. election evidently contributes to uncertainty on that front, Macquarie analysts said.
Economic uncertainty is a prevailing factor, agreed Sprott’s McIntyre. Both U.S. presidential candidates Kamala Harris and Donald Trump are likely to be favorable for gold prices, as fiscal irresponsibility is expected to persist in either case, McIntyre said.
Consistently strong U.S. labor-market data has damped hopes for another jumbo Federal Reserve interest-rate cut, but the market is still pricing in smaller rate cuts before the end of the year—typically a boon for non-interest bearing bullion, as it lowers the opportunity cost, McIntyre said.
Elsewhere, safe-haven demand amid heightened geopolitical risks and U.S. election uncertainty are keeping gold well-supported, ING analysts said in a note.
Traders are seeking safety in bullion after Israel said it killed Hamas leader Yahya Sinwar late Thursday, marking a potential turning point in the war, ING said. Israeli Prime Minister Benjamin Netanyahu said the country would keep fighting until all of the hostages captured in the Oct. 7 attack last year are freed, though he is likely to face increased pressure from the U.S. and domestically to end the military offensive and reach a deal.
BMI analysts said they are neutral to bullish toward gold for the end of 2024 through to the first quarter of 2025, as prices receive support from the Fed’s rate cuts and high levels of geopolitical tension. BMI expects spot gold prices to trade within the range of $2,500-$2,800 an ounce in the coming months.
Private investors are continuing to take profit at these record high levels, but the pace of liquidations are far from a rush—because investors aren’t selling as fast as prices rise, said Adrian Ash, director of research at online precious metals marketplace BullionVault.
“The measured pace of net selling overall shows that investors remain confident in gold’s long-term outlook,” Ash said.
Read the full article HERE.
The federal government ran a budget deficit that topped $1.8 trillion last year, according to the CBO’s estimate
The federal government’s budget deficit was nearly $2 trillion last year and is expected to widen further in future years, with experts warning that the government needs to rein in deficits to ensure fiscal stability.
The nonpartisan Congressional Budget Office (CBO) released its preliminary estimated deficit for fiscal year 2024, which was $1.834 trillion. The FY2024 deficit was $139 billion larger than the actual deficit recorded in the prior fiscal year, as spending growth eclipsed the rise in tax revenue.
Based on the preliminary estimate for the FY2024 deficit, it ranked as the third-largest budget deficit in U.S. history. It trails only the $3.132 trillion deficit in FY2020 and the $2.775 trillion deficit in FY2021, each of which were incurred amid elevated federal spending on pandemic relief programs.
The deficit’s growth comes amid rising federal spending on entitlement programs like Social Security and Medicare amid the aging of America’s population, as well as higher interest payments on the debt caused by elevated interest rates and a growing national debt.
Spending on net interest payments on the debt rose by $240 billion in FY2024 compared to last year, according to the CBO’s estimate. Social Security spending was up $107 billion and Medicare rose $25 billion from a year ago.
“With one fiscal year ending and another starting anew, it’s clear that we have a lot of course correcting to do,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget (CRFB). “We’re now borrowing $5 billion per day, while interest payments are soaring.”
“At nearly $2 trillion, last year’s deficit was almost double pre-pandemic levels. We face massive headwinds with debt set to reach an all-time record share of the economy by 2027; and we don’t even have a plan to address our fiscal challenges,” she said.
“As rising interest costs and our structural deficits drive the national debt higher and higher, it’s clear that this is a fiscal election with enormous implications for America’s future,” said Michael Peterson, CEO of the nonpartisan Peter G. Peterson Foundation.
Deficits are projected to continue to widen in the years ahead. The CBO projected that deficits are on track to surpass $2 trillion a year starting in FY2030 and will be nearly $2.9 trillion just four years later.
The economic plans released to date by the two leading presidential contenders, Vice President Harris and former President Trump, have each been projected to cause the deficit to widen at a faster pace and opted against addressing the looming insolvency of a key Social Security trust fund in the next decade.
An analysis by CRFB found that Harris’ economic plan would likely result in deficits being $3.5 trillion larger over the 2026-2035 period, while Trump’s plan would widen deficits by $7.5 trillion in that period.
“We cannot afford to continue to borrow at this rate indefinitely. It is long past time that policymakers stop adding to our growing national debt and instead agree on a path forward that puts the debt on a downward, sustainable path for future generations,” MacGuineas explained.
“The leaders we elect this fall will face a series of critical deadlines, including the return of the debt ceiling, the expiration of trillions in tax cuts, and automatic cuts in Social Security growing ever closer. Voters are taking notice and want to hear about fiscal solutions, but unfortunately we have yet to see adequate plans from either of the presidential candidates,” Peterson added.
Read the full article HERE.
Gold advanced towards record highs on Wednesday as gains in non-yielding bullion were bolstered by weakness in U.S. bond yields and expected rate cuts by major central banks, with additional safe-haven support from ongoing geopolitical conflicts.
Spot gold rose 0.7% to $2,681.50 per ounce by 9:30 a.m. ET (1330 GMT), just a whisker away from record high of $2,685.42 it hit on Sept. 26. U.S. gold futures gained 0.7% to $2,698.20.
Expectations of a 25-basis-point rate cut by the U.S. Federal Reserve in November are solidifying, weaker inflation data in Europe and the UK have increased expectations for more aggressive easing from the central banks, leading to generally lower yields which have lifted gold, said Peter A. Grant, vice president and senior metals strategist at Zaner Metals.
“There’s even an outside chance we could see close to $3,000, and that’s probably more of a Q1 2025 target,” Grant said.
U.S. Treasury yields fell to their lowest in over a week, making gold more attractive as it tends to thrive in a low interest rate environment.
Traders currently see about a 96% chance of a 25-basis-point U.S. rate cut in November, according to the CME FedWatch tool, opens new tab.
The European Central Bank looks set to deliver another rate cut on Thursday, while a drop in British inflation indicated a rate cut next month by the Bank of England.
The main bullish drivers for gold include risk of fiscal instability, safe-haven appeal, geopolitical tensions, de-dollarization, U.S. Presidential election uncertainties and rate cuts by central banks, said Ole Hansen, head of commodity strategy at Saxo Bank.
Delegates to the London Bullion Market Association’s annual gathering predicted gold prices would rise to $2,941 over the next 12 months and silver prices would jump to $45 per ounce.
Spot silver firmed 1.5% to $31.94. Platinum rose 1.1% to $995.40 and palladium climbed 1% to $1,019.83.
Read the full article HERE.
The S&P 500 could see a setback in the next 12 months as the bull market enters its third year: CFRA Research
U.S. stocks were kicking off their third year in the bull market with the S&P 500 scoring a fresh record on Monday — but history suggests investors need to be prepared for a potential setback in the coming 12 months.
Since 1947, all 11 bull markets that celebrated their second birthday experienced at least one decline of 5% or more in the subsequent 12 months, with some even turning into new bear markets, according to Sam Stovall, chief investment strategist at CFRA Research.
“The average return following the 11 bull markets [since 1947] that celebrated their second birthday was a mere 2%,” Stovall said in a Monday client note. “What’s more, all of them experienced a decline of 5% [in the next 12 months], while five endured selloffs in excess of 10% but less than 20%, and three succumbed to new bear markets.”
The S&P 500 has climbed nearly 64% since Oct. 12, 2022, when the large-cap benchmark index hit a bear-market closing low of 3,577.03. The index surged 0.8% on Monday to finish at 5,859.85, according to FactSet data.
The table below shows the first year of the current bull market saw a 22% advance for the S&P 500, which was the third lowest since 1947. However, the index posted the highest of all second-year increases of 34%, versus the median of 11.5%, according to CFRA Research.
In Stovall’s view, the current high valuation of the U.S. stock market, especially large-cap stocks, is “concerning” as the bull market enters its third year.
The trailing price-to-earnings ratio for the S&P 500 is currently 25 — the highest valuation for the second year of a bull market since World War II. That level is also 48% higher than the median second-year P/E for all bull markets since 1947, according to CFRA Research.
“P/E multiples typically shrank during the third year of the bull market, since earnings-per-share growth tended to accelerate and confirm the optimism implicit in the sharp price advances during the early years of bull markets,” Stovall noted.
To be sure, Wall Street analysts are expecting year-over-year earnings growth rates of 14.2%, 13.9% and 13.1% for the fourth quarter of 2024 and the first and the second quarters of 2025, respectively, according to John Butters, senior earnings analyst at FactSet Research.
Earnings are also expected to grow around 15% in fiscal-year 2025, compared with an expected growth rate of around 10% in 2024, Butters said in a Friday note.
U.S. stocks ended higher on Monday as investors turned their attention to the next batch of corporate earnings. The Dow Jones Industrial Average was up over 200 points, or 0.5%, while the Nasdaq Composite rose 0.9%, according to FactSet data.
Read the full story HERE.