November is now behind us, and we hope everyone had a chance to enjoy Thanksgiving with family and friends. As for the markets, we went from hearing it was the worst November for stocks since the Great Financial Crisis in 2008 to hearing it was the best Thanksgiving week for stocks since 2012. We’ve noted time and time again that we expected a year-end rally, and it very well could have started.
Yes, the S&P 500 only eked out a small gain in November, but after a 38% rally in six and a half months, some type of pause was likely necessary. The S&P 500 had fallen nearly six percent from the late October peak through November 20, but then a strong end-of-month rally got November back to even, although not quite back to all-time highs.
During that relatively modest pullback, we saw historic amounts of fear and worry, exactly what you need to flush out the weak hands. We will say it again: After a 38% rally, to give back around 6% isn’t a bad thing and is perfectly normal.
Over the coming weeks, we will continue to dive into why a nice rally in December is possible, but for now, in the spirit of Thanksgiving, we wanted to touch on a few things all investors should be thankful for in 2025.
The Economy Is Improving
All we hear is how bad things are out there, but we are thankful the US economy appears to be improving and growing above trend.
Here’s our Carson Investment Research Proprietary Leading Economic Index (LEI) for the US, which shows our economy is indeed improving under the surface. Take note: This LEI never predicted a recession in 2022 and 2023 like so many other indicators did.
Add to this that the Atlanta Fed GDPNow is estimating a very impressive 4.2% GDP print in the third quarter, and there is much to be thankful for from an economic point of view.
The US Isn’t Top-Heavy
We hear constantly how the US is top heavy and only a few stocks account for the gains. This simply isn’t true if you look at the data, as we’ve noted frequently the past year-plus.
Yes, the top 10 stocks in the US account for nearly 40% of the overall market cap of the US. Here’s the thing: It was 39% last year at this time, and things have done just fine. But looking around the globe shows the US is actually one of the least top-heavy countries! In fact, only Japan and India are less top-heavy. We don’t have the same worry about this as others, but when you show it this way, it really hammers home that the US isn’t as top-heavy as it may seem.
Earnings Drive Long-Term Stock Gains
We are wrapping up a very strong earnings season, which we think is justifying the move we’ve seen in equities. Earnings are a lagging indicator, but they can tell us if there’s a good fundamental reasons stocks have been doing well, and the Q3 earnings season says there is. At the start of the quarter, S&P 500 third-quarter earnings were expected to be up 7.9%, but that estimate is up to an incredible 13.4% currently. Revenue has done much better than expected as well, and is the highest it has been in three years.
FactSet’s John Butters does amazing work on earnings, and he found that Magnificent 7 earnings (an unofficial index that has become commonly used) were up 18.4% this quarter, a very strong number and much better than expected two months ago. But what many seem to consistently ignore is how well everyone else is doing. That’s right: The other 493 stocks in the S&P 500 have seen earnings up nearly 15%! Yes, those big seven names make a LOT of money, but the other 493 are doing just fine.
Lastly, John found that analysts tend to do quite well with their EPS targets. Yes, if you have an outlier year like 2001, 2008/09, or 2020, then things can be off, but we don’t see a recession next year, so things should be more “normal.” Looking at those normal years (and excluding the outliers), the average difference between what analysts expect earnings to be at the start of the year and at the end of the year was just 1.1%. That’s a tiny number, and one that says we could be looking at another year of low double-digit earnings growth next year when all is said and done — another reason to be thankful.
Stocks Rarely Peak in October
Lastly, here’s another reason to expect eventual new highs in 2025. To date, the S&P 500 peaked on October 28 in 2025, right before the Federal Reserve Bank cut interest rates the next day.
We remain optimistic this bull market is far from over and we could see a strong year-end rally, with likely new highs before 2025 is over. That would be quite normal, as only six times did the S&P 500 peak for the year in October, and we don’t think this will be seven.
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