Rolling past uncertainties Rolling past uncertainties http://www.federatedhermes.com/us/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedhermes.com/us/daf\images\insights\video\truck-big-rig-yellow-small.jpg October 16 2024 October 21 2024

Rolling past uncertainties

2025 will come with clarity on interest rates and politics.

Published October 21 2024
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As we roll into calendar 2025, two of the major uncertainties that we've been worried about in the back of calendar 24 will be in the rearview mirror. The Federal Reserve has now begun the interest rate-cutting cycle, and we have a better sense of what their pace and trajectory and magnitude and justification will be. We'll also have the election behind us. We'll know who the new president is, and more importantly, we'll know what the makeup of Congress is in terms of the Senate and the House of Representatives. So as we look in the calendar 2025, we expect that lower interest rates and inflation from the Federal Reserve means the price-earnings ratios are likely to expand. We think the corporate earnings will grind higher, probably at a pace of about eight to 10 percent. So if you look at 300 in S&P earnings in calendar 26, and let's call it a 20 P/E on those forward earnings, that would suggest a target of about 6,000 by the end of calendar 25. The sectors that we think will work best, given the fact that the Magnificent Seven stocks have dramatically outperformed the market over the course of the last 18 months, we think that the reversion to the mean and the broadening out of that rally that we've seen in recent months will continue. So in calendar 25, we think that small-cap stocks, domestic large-cap value stocks, and international stocks will continue to play catch-up and reward investors appropriately.
Tags Markets/Economy . Equity . Monetary Policy . Politics .
DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Magnificent Seven: Moniker for seven mega-cap tech-related stocks Amazon, Apple, Google-parent Alphabet, Meta, Microsoft, Nvidia and Tesla.

Price-Earnings Ratio is a valuation ratio of a company's current share price compared to its per-share earnings.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.

Small company stocks may be less liquid and subject to greater price volatility than large capitalization stocks.

Stocks are subject to risks and fluctuate in value.

Value stocks tend to have higher dividends and thus have a higher income-related component in their total return than growth stocks. Value stocks also may lag growth stocks in performance at times, particularly in late stages of a market advance.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future results. 

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