There’s an old adage on Wall Street: “The news follows the tape.” This means stock price changes often occur before the news becomes widely known. This has happened with stocks as well. The S&P 500 has fallen for a week in a row. The stock has been trading lower on valuation concerns, the prospect of fewer rate cuts, sticky bond yields and worries about President-elect Donald Trump’s tariffs and potential appointments. Now there’s another added fuel to the fire due to the geopolitical issues surrounding Russia/Ukraine. This certainly puts the nuclear threat on the table. Geopolitics has finally intervened in the market. So why do stocks, especially cyclical sectors like industrials, rise in mid-morning? Bulls appear to want to believe that Russia’s latest threats will lead to a deal to end the war sooner. Others said positive headlines across the Middle East, with Iran reportedly agreeing to halt production of near-bomb-grade uranium, also a positive factor. Either way, this means geopolitical issues are another factor affecting the market. But where will the market go? A bit of a dilemma. No one is happy now and the bulls are not happy as the momentum has been broken and the tone is not as positive as it was after the election. While some sectors (banks) are holding on to their gains, others are selling off on a daily basis: Consumer Staples and Healthcare, and Big Pharma in particular, are doing poorly. The bears aren’t happy because the market hasn’t given up enough, and their argument makes sense: the S&P 500 closing high on November 11 was 6,001, so we’re only 2% below that value. Pity the poor Wall Street strategists who are writing their 2025 outlook. They have an impossible job. In a normal year, most strategists’ outlooks would be ridiculously wrong because there’s no way to estimate where the market will be a year from now. There are too many variables. This year is not normal. There are a lot of moving parts, so your predictions are more likely to go hilariously wrong because events are unfolding as you write and you don’t know how they will resolve. So what do you do when the macro environment changes like quicksand beneath your feet, but you still need to make predictions? You mean – return. Take a look at the estimates from the brave few who have already made predictions for 2025. BMO Capital (Brian Belski) 6,700 Morgan Stanley (Mike Wilson) 6,500 Goldman Sachs (David Kostin) 6,500 UBS 6,400 Evercore ISI 6,600 (mid-2025) Do you notice that they all tend to cluster around 6,500? That’s about 10% higher than current S&P 500 levels. What is the current average annual return for the S&P 500? 10%. Tough Choices Going into Year-End I know everyone has read the research that the market is up about 3% on average going into year-end after the presidential election. The S&P 500 has gained 0.3% since the close on Election Day. But these are just averages. If it were that simple, “Let’s just buy the market and sell on New Year’s Day!”, everyone would be rich. For much of this year, the picture has been pretty clear: The economy is pretty strong, with revenue up 10% and still expected to grow a healthy 14% in 2025. It’s very complex and the market is reflecting some uncertainty.
Geopolitics is finally starting to play a role in stock market movements | Real Time Headlines
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