Stocks Analysis by Lance Roberts covering: S&P 500, iShares Core U.S. Aggregate Bond ETF, Bitcoin US Dollar. Read Lance Roberts's latest article on Investing.com
we discussed how speculation and leverage have returned in earnest to the market as investors rush to take on increasing levels of risk. With markets rising steadily all year, it is unsurprising to witness investors lulled into an elevated sense of complacency.we witnessed following the Covid lockdowns. I posted the following chart on “X” Friday morning for reference.
Some of that rebalancing has already been in process, but we suspect there is more to go, particularly given the rather extreme reading of the stock-to-bond ratio. According to S&P Global, earnings are expected to grow by 19.87% in 2025 from $209.83 to $251.53 per share. As discussed, such is well above the long-term earnings growth trend from 1900 to the present. Still, such exuberance is unsurprising during strongly trending bull markets in an attempt to justify higher valuations. The problem is that such exuberant forecasts rarely come to fruition.
That close relationship in growth rates should be logical, particularly given the significant role that consumer spending has in the GDP equation.”A better way to visualize this data is to look at the correlation between the annual change in earnings growth and inflation-adjusted GDP. There are periods when earnings deviate from underlying economic activity. However, those periods are due to pre- or post-recession earnings fluctuations.
Corporate earnings growth, which correlates with economic indicators like the ISM Manufacturing index, suggests some caution about the more optimistic 2025 Wall Street estimates. However, even if we include the services side of the index, which comprises the bulk of economic growth, and weigh it accordingly, we see that the stock market has far outpaced underlying economic activity.
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