The stock Market’s Momentum Might Assist The S&P 500 Forecast in Reaching New Highs

The November stock market surge has been so impressive that we now believe the S&P 500 index will set a new high by the end of the year.

This week, the S&P 500 forecast gained 2.2%, the Dow Jones Industrial Average gained 1.9%, and the Nasdaq Composite gained 2.4%. Much of the boost came on Tuesday, when the consumer price index for October came in lower than predicted, confirming the Federal Reserve’s decision to cease hiking interest rates.

That’s how excellent the CPI reading was. The headline figure was barely changed from the previous month, but core CPI, which includes volatile food and energy, climbed 0.2%, falling short of estimates of 0.3%. It was just another indicator that the Fed is winning the battle against inflation. According to the CME FedWatch Tool, the chances of an interest-rate rise in December have dropped to 0.2%, with a 28% possibility of a decrease in March. The S&P 500 has now gained 10% in three weeks, the highest three-week rise since 2020.

This rally is one to get behind. The S&P 500, presently at 4514, has broken above crucial levels and shows no indications of relenting. It has broken through every significant level as it has rallied from its recent low, and now just 4520 stands in its way. The index has previously encountered resistance around that level and is battling to break past it. Still, the fact that it hasn’t fallen indicates that market participants are confident enough to keep buying equities.

If the S&P 500 crosses 4520, it should be off to the races. Its momentum may easily propel the index back to the end of July’s intraday high of 4607, which is only 2.1% away. It may then easily achieve its all-time intraday high of 4818, set in January 2022. Seasonality might also help, with equities gaining 1.5% on average in December since 1950.

“The setup is there to make a run at that peak,” says Jay Woods, chief global strategist at Freedom Capital Markets. “There’s too much momentum and fear of missing out.”

Some challenges, however, are more than just technological. It’s no surprise that the S&P 500 and the iShares 20+ Year Treasury Bond exchange-traded fund (TLT) have increased this week, indicating that rates must remain unchanged or fall for the index to continue rising. According to 22V Research founder Dennis DeBusschere, economic data has slowed sufficiently to keep yields roughly where they are. He says in a note that 10-year yields should remain around current levels as long as estimated GDP growth is around current levels.

Corporate sales might increase as the economy expands. According to FactSet, analysts predict revenue at S&P 500 firms will expand at a 5.1% annual pace during the next few years, making S&P 500 forecast pretty positive.

Meanwhile, the cost of materials and labor should rise at a slower pace, allowing corporations to boost profit margins and free up more cash for share repurchases. Earnings per share are predicted to rise by 12% in the following two years. That projection may feel too wonderful to be true — and it may be — but that’s an issue for next year. For the time being, enjoy the benefits.