Newscasts - Market Insight: 'Fundamentals are in place' for markets to move ever higher in 2025

MAG Silver

12/12/2024 17:48

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Source: 'Reuters - Business videos'

Description: The Nasdaq hit 20,000 points for the first time on Wednesday,
sparking some concern about overstretched valuations. Keith Gangl of Gradient
Investments told Reuters he believes earnings can justify those numbers, and
the market can continue to push higher.
Short Link: https://refini.tv/4gbtWE6

Video Transcript:

The NASDAQ hits 20,000 points as the tech rally rolls on, but can it last?
Welcome to Market Insight. I'm Elena Casas. On Wednesday, the NASDAQ closed at
over 20,000 points for the first time, up more than 33% on the year as hype
over artificial intelligence reached fever pitch. The rally has rewarded
investors who went big on growth but also stirred some unease over just how
stretched valuations are. Well, for more, I'm joined now by Keith Gangl,
Portfolio Manager at Gradient Investments. Keith, hi. You said in your notes,
the easier trade for 2025 is higher, why?

Yes, fundamentals are in place, I mean unemployment here in the US is very low
is at 4.2%. So again, when consumers are working in the US, they love to spend
money, that's a key driver for the overall economy. Another key factor we look
at it is earnings per share growth rate. Next year's forecast is for 15%. This
year, we're going to do about 9%, 10%, anytime you get in that double digits,
that's fantastic. So, if we do 15%, that's a key backdrop. GDP growth rate,
another thing we look at and GDP growth rate in the US is right around almost
3% this year. The forecast for next year is a slight slowdown, but 2.7%. So,
if we do 2.7%, we have unemployment stays relatively low. We think that could
tick-up a little bit. Earnings at 15% forecast, we think that's a little too
high, but even if that stays at 9%-10%, we think that's a good backdrop for
the overall stock market.

As you mentioned though, some of these valuations are pretty stretched. Do you
think earnings will justify them next year?

We do, valuations high. So, if you look at the overall multiple on the S&P
500, we're trading at around 22 times. If you look at the last 5 to 10 years,
it's 18 times on a 10-year average and 19 times on a 5-year average. So,
again, we're at 22 times of markets are expensive, but valuation is not a sole
reason sell stock markets down. It's a kind of a flashing yellow light for us,
but again with earnings so strong. If they do 15%, that'll make the valuation
come down. We're expecting kind of that normalized year, last year we were up
almost 25% in the S&P 500. This year, currently we're at about 28%. So,
fundamentals are in place for that of a positive normalized year to normalize
years about that 8% to 10%. So, we think that's possible.

Should investors be looking to move some money, especially out of growth
stocks, though, in case of a bubble bursting?

Yes, we think the market is starting to broaden, which is a good thing. If you
look at the last 18 months, last two years of performance been driven by the
Magnificent Seven. We think other companies’ fundamentals are starting to
finally turn around. You starting to see some earnings acceleration. Now
earnings been fantastic for those Mag Seven companies. Their growth rates are
20% plus. We think that numbers are start going down, that 20% starts going on
to 15%, whereas if you look at the rest of the market, the earnings growth
rates were sub 5% and that's going to accelerate from that sub 5% go to 5% to
10%, maybe even plus. So, their earnings growth rates actually accelerating
there on for those companies. So, that's something we're interested in the
broadening out of the market.

Do you think that concentration in the Mag Seven looks unsustainable if the
market doesn't broaden out soon?

Yes, the markets, those Mag Seven's make up about 33%, 32% of the overall S&P
500. That's at historical high. So, we do like to see it broaden out, but that
doesn't mean necessarily those going to be bad stocks. We just think the rest
of stock can play, catch up and outperform those Mag Seven. By them doing that
that number could go down for 30% to 28% that type of thing. That's were in
that range a little more comfortable with. So, we are starting to take some of
our winners down a little bit on those Magnificent Seven starting to brought
by the rest of the market.

Let's talk briefly about the Fed keys, markets see a cut next week as baked
in. But could a more hawkish position with fewer cuts next year slow some of
that stock momentum?

That could certainly do that. I mean, investors are expecting a cut or up to
about 98% probability of a cut next week. So, looks pretty certain that the
Fed won't surprise us. The biggest thing is what they'll guide for next year.
Right now, the consensus probably is for around anywhere between 3 and 4 cuts.
So that's about 100 more basis points next year. Now, if inflation stays a
little bit sticky, maybe the economy actually starts heating up again. Maybe
they won't cut as much, and that could be a slight headwind for the overall
market, but I'm actually more of a favor if the economy is really strong, have
less Fed cuts. And I think that would actually drive the market higher.
Anyway, so again, those are something we have to watch. But investors are
looking for those cuts next year, and that could be a slight surprise if we
don't see 3 or 4 cuts next year.

Keith Gangl of Gradient Investments, thank you so much. Well, that's your
Market Insight