Favorite Fifteen – December 2024
By Vigilant Wealth Management on December 17, 2024
The Investment Policy Committee has finalized this month’s Favorite Fifteen chart pack. Below please find the link to the slides for December 2024. Here are a few important observations;
Global Economic Activity: As we approach the end of 2024, the trends observed over the past year remain consistent. Global economic activity is on the rise, fueled by strong activity in the services sector and a recovery in the manufacturing sector, as illustrated in Chart #2.
U.S. Growth: Both the Weekly Economic Index (Chart #3) and the Atlanta Fed GDP NowCast (Chart #4) indicate that the U.S. economy will end 2024 with robust growth, and this momentum is expected to extend into the first half of 2025. The services sector, which comprises over 70% of the U.S. economy, continues to expand and drive this growth, while the manufacturing sector aims to rebound after a challenging year (Chart #5).
Business Sentiment: The Small Business Optimism Index (Chart #6) saw a significant uptick in November. Small businesses have faced higher capital costs and a challenging regulatory environment. However, the Federal Reserve’s easing cycle, coupled with the promise of reduced regulation, has boosted sentiment among small business owners. This positive shift could serve as a tailwind in 2025, given that small businesses are the largest employers in the U.S.
Bond Market: The bond market is trying to discount conflicting narratives. The Federal Reserve has begun cutting interest rates, resulting in lower yields on the short end of the yield curve (less than one year). Meanwhile, inflation remains persistently high, well above the Fed’s 2% target (Chart #9), and the potential for higher tariffs and reduced labor (deportations) could lead to a resurgence. This situation has caused the yield curve to flatten, with the long end steepening as the short end declines (Chart #10).
Corporate Profits: Economic growth has positively impacted corporate profits. Chart #13 shows consensus estimates for S&P 500 profits in 2024 and 2025 are increasing, with year-over-year growth expected to be 10% and 15%, respectively.
Stock Market: Stocks have reached record highs, as indicated in Chart #12. However, much of this positive news is already reflected in stock prices. The P/E NTM ratio on Chart #14 surpasses 2 standard deviations above the 20-year average, suggesting limited upside potential.
