Technical Analysis Summary of US Equities 2025 Forecast
This summary provides an overview of the technical analysis related to the 2025 forecast for US equities, particularly focusing on the S&P 500 index (SPX) and its performance trends over the past two years.
Recent Performance Overview
The S&P 500 has experienced a remarkable gain of 27% in 2024, contributing to a total two-year increase of 57%. This performance marks the largest two-year gain since 1997-1998, when the index rose by 68.49% before a significant pullback in 2000.
SPX Yearly Chart (Data derived from Tradingview)
Key Technical Drivers
Several factors have influenced the recent rally in equities:
- Rate Cuts: The anticipation of rate cuts, which began in September 2024, has been a significant driver of the equity rally. The only decline in the SPX over the past six years occurred in 2022 due to aggressive rate hikes.
- Technological Advancements: The rise of Artificial Intelligence (AI) has played a crucial role in boosting stock prices, similar to the tech boom of the late 1990s. Companies like NVIDIA and Meta have seen substantial gains, with NVIDIA's stock increasing tenfold from its 2022 lows.
NVIDIA Weekly Chart (Data derived from Tradingview)
Market Sentiment and Risk Appetite
The current market sentiment is characterized by a "risk-on" environment, driven by low interest rates and the promise of new technologies. This environment encourages investors to take on more risk, leading to higher stock valuations.
In 2024, the political landscape, particularly the expectation of a business-friendly administration, has further fueled optimism in large-cap tech stocks.
Long-Term Yield Dynamics
Falling long-term yields have historically acted as a catalyst for stock price increases. The relationship between the US 10-year yields and the SPX indicates that as yields decline, equity prices tend to rise, as evidenced by the inflection points noted in Q4 of 2022 and Q4 of 2023.
US 10 Year (Candlesticks) & SPX (Blue line) Chart (Data derived from Tradingview)
Conclusion and Outlook
Looking ahead to 2025, the expectation is for continued support in equity prices, albeit potentially at a slower pace than the previous two years. The interplay between monetary policy, inflation, and market sentiment will be critical in shaping the equity landscape as we move forward.