Since President-elect Donald Trump’s decisive election win on November 5, the stock markets have been on fire with the S&P 500, Dow Jones Industrial Average, Nasdaq, and TSX all hitting record highs.
And that’s saying something. The broader stock markets did well in 2023, in spite of inflation, high interest rates, and fears of a recession. Last year, the S&P 500 advanced 24%, the Dow Jones climbed 13.7%, the Nasdaq grew 43.5%, and the TSX rallied 8.1%.
There are still seven weeks left in 2024, but already the stock market is doing better than expected. Year-to-date, the S&P 500 is up 24.7%, the Dow Jones has climbed 16%, the tech-heavy Nasdaq has jumped 27%, and the TSX is up 19.5%.
Why Are Stocks Going Up After the Election?
Even before the November election, investors had a “fear of missing out” (FOMO) on the two-year bull run, with the S&P 500 notching up 47 record highs in 2024. Since November 5, the S&P 500 has hit four more record highs.
And by all accounts, the FOMO on the so-called Trump Trade is going to continue. Thanks to Trump’s pro-business policies coupled with solid corporate profits and relatively strong U.S. economic data, there’s no reason to bet against the American economy.
Admittedly, the S&P 500 year-to-date numbers have been juiced in large part by the big tech stocks. But even the equal-weighted S&P 500’s year-to-date gains of 15.5% are still better than what investors could be getting elsewhere.
How Are Stocks Expected to Do in the Fourth Quarter?
By all accounts, stocks are expected to do well for the remainder of the year. Earnings growth for S&P 500 companies is only expected to be 5% in the third quarter, but earnings are projected to jump into double digits in the coming quarters with 2025 earnings growth forecasts at around 15%.
The broader optimism has forced Goldman Sachs to predict the S&P 500 will hit 6000 by the end of 2024. While that’s less than 1% from current levels, the S&P 500 could hit 6270 if the stock market follows historical October to December election year trends. That would put the S&P 500 well into record territory.
Longer term, some analysts expect the party to continue for years to come, with the S&P 500 hitting 7000 in 2025 and 8000 in 2026, rising to 10,000 at the end of the decade.
Those bullish calls are certainly encouraging, but with stock valuations in bubble territory, other analysts think investors could see a bigger upside with TSX stocks. Both the S&P 500 and TSX have had great years, but Canadian stocks can provide investors with better downside protection and dividends.
Case in point, the S&P 500 is up 32% over the last year on earnings growth of around 4%. If the S&P 500 was being driven only by earnings, it would be hovering near 4600, instead of 6000.
As a result of this FOMO, the S&P 500 is trading at a multiple of approximately 22 while the TSX is trading with a multiple of around 16.5.
Because of their lower valuations, Canadian stocks provide investors with better downside protection should the markets turn bearish.
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