Good morning investors. Hope you had a great New Year’s. This morning we’re focusing on the single most important driver for stock prices — and how it’s expected to change over the next 12 months.

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A broadening earnings story

From market psychology and monetary policy to the White House and Federal Reserve, there are a lot of factors that move the stock market. 

The single most important driver for asset prices, however, is corporate earnings.

While the economic outlook remains mixed, Wall Street remains optimistic that earnings — and so, investors — will fare just fine in 2025. 

The S&P 500 finished 2024 with a 23.3% return — just the second time in over two decades the index notched back-to-back years of a 20% gain — and no one expects stocks to go down in the new year.

The estimated year-over-year S&P 500 earnings growth rate for 2025 hovers at 14.8%, according to FactSet.

That’s well above the trailing 10-year average of 8%. The bump reflects an expectation for strength beyond the Big Tech names that have recently fueled the market. 

Earnings for the Magnificent 7 — Amazon, Alphabet, Tesla, Nvidia, Microsoft, Apple and Meta — are indeed seen expanding 21% this year, but analysts anticipate the other 493 companies to narrow the gap. 

Earnings growth for the rest of the index is projected at 13%, more than triple the 4% forecast seen at the start of 2024.

Goldman Sachs’ chief US equity strategist David Kostin, who forecasts the S&P 500 to climb about 10% in 2025, told clients in November that a broadening earnings landscape should cut into Big Tech’s dominance.  

“The narrowing differential in earnings growth rates should correspond with a narrowing in relative equity returns,” Kostin said. “Although the 'micro' earnings growth story supports continued ‘Magnificent 7’ outperformance, more 'macro' factors such as economic growth and trade policy lean in favor of the S&P 493.”

Meanwhile, analysts see both the estimated revenue growth rate and net profit margin coming in above their respective 10-year averages.  

All of the above adds up to an upbeat outlook for Wall Street.

Among the 16 firms tracked by Opening Bell Daily, the average forecast sees the S&P 500 climbing 14.03% over the next 12 months. 

If that average estimate holds, it’d be a weaker mark than the last two years but still comfortably higher the typical 10% annual return. 

Comments or feedback? Reply directly to this email or let me know on X @philrosenn.

Elsewhere:

🚗Tesla car deliveries come due. Elon Musk’s automaker is set to release its fourth-quarter delivery numbers on Thursday. Through the first three quarters of 2024, Tesla delivered 1.29 million vehicles globally. Investors are looking for a fourth-quarter print of 515,000, so that the full-year number eclipses the 1.81 million seen in 2023. (Barron’s)

🚀Gold just had its best year since 2010. The commodity gained more than 26% in 2024, driven by demand for a safe-haven asset as well as global central bank’s rate cuts. Geopolitical uncertainty, which could continue in 2025, sent investors clamoring for gold all year. (CNBC)

🌍️What will shape markets in 2025? Donald Trump and Jerome Powell loomed large for investors in the year that was, while the AI trade continued to gain momentum with Nvidia leading the way. Those three newsmakers are set to continue influencing investors’ decisions in the new year. (Opening Bell Daily)

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