By Saqib Iqbal Ahmed
NEW YORK (Reuters) – A brutal rally in U.S. stocks shows little sign of slowing down at year’s end, even as rising valuations and signs of excessive speculation fuel concerns that a pullback may already be too late.
The S&P 500 closed out its 57th record of the year on Friday and is up nearly 28% in 2024, driven by a robust U.S. economy, expectations of lower interest rates and excitement about the tax cuts and deregulation promised by President-elect Donald Trump.
Strong momentum was a hallmark of the rally. The S&P 500 has gone 13 months without moving 10% or more from its record high, the longest streak in nearly three years. Historically, corrections of 10% or more have occurred on average once a year, according to data from BofA Global Research.
“Momentum is what drives the market,” said Steve Sosnick, chief investment strategist at Interactive Brokers. “The market is basically a freight train right now and no one really wants to get in its way.”
Betting on a market in a strong uptrend has historically been risky: The S&P 500 has posted annual gains of 20% or more five times in a row since 1928, and in both cases has been higher three months later, with an average gain . of 6.3%, according to a Reuters analysis of LSEG data. Last year the index rose by 24.2%.
“Momentum breeds momentum,” said Sonu Varghese, global macro strategist at Carson Group, who is overweight equities.
“You don’t want to fight the tape.”
Still, even some ardent bulls are starting to wonder whether the stock might need a breather.
Bank of America’s Michael Hartnett noted Friday that the S&P 500 was trading at 5.3 times price to book value, surpassing its March 2000 peak, and warned there was a risk of an “overshoot.” in the first quarter of 2025. He also nodded to signs of “froth” in the broader markets, including the post-election rally that pushed Bitcoin past $100,000 for the first time last week.
The bank has a target of 6,666 on the S&P 500 for next year, more than 9% higher than where it is trading now.
Ed Yardeni, founder of Yardeni Research, cited several metrics that indicate sentiment is tilting to the bullish side, including November’s Consumer Confidence Index, which showed a record: 56.4% of consumers expect stocks to will be higher in the next twelve months.
Extremes in sentiment are often seen as a contrarian indicator, because the bar for positive surprises is higher.
“There may be too many excited bulls for the here and now,” Yardeni wrote, adding that a near-term pullback would likely be an opportunity for investors to buy cheap.
