S&P 500: room for a moderate rise in 2025, despite non-cheap multiples

Trump’s agenda will, in the medium term, lead to a scenario of higher inflation, higher interest rates and a stronger dollar, but in 2025 a moderate rise in the stock index is possible.

by Filippo Garbarino, manager of the Lemanik Global Equity Opportunities fund

The S&P 500 trades at a 22x multiple of next year’s earnings, while the S&P 500 Equalweight is cheaper, at approximately 18x. These valuation levels are not cheap. However, we believe that rising corporate earnings and lower interest rates will lead to a moderate increase in equities over the next 12 months. The agenda of the new Republican administration in the United States is very similar to that of 2016 and is based on lower taxes (corporate and personal), higher tariffs, immigration control and deregulation. In the medium term, these policies will on balance lead to a scenario of higher inflation, higher interest rates and a stronger dollar.

Recent data show that central banks have made significant progress in the fight against inflation. The US consumer price index has normalized, from a peak of 9.1% to the current 2.9%. The labour market is rebalancing, with the US unemployment rate currently above 4% after reaching a low of 3.4% in 2023. Therefore, the Federal Reserve has started its rate-cutting cycle and a further rate cut of 50bps is expected in 2025. The US economy remains in expansionary territory. However, there are some weak spots in the global economy that need to be monitored closely. High prices for goods and services are putting pressure on consumers, and there has been a prolonged period of contraction in manufacturing sector indices.

Meanwhile, the Chinese economy and the European one are in stagnation. The property market is still weak because of high mortgage interest rates. These weak spots have contributed to the process of normalizing inflation. During January, the Lemanik Global Equity Opportunities fund sold its positions in Lvmh and Msci and opened a new position in Hilton. At sector level, the portfolio has no exposure to banks or oil stocks, which are considered too risky. The portfolio is overweight in industrials, chemicals and consumer discretionary. Technology stocks are underweight, and there is no exposure to the hardware sector. There is no exposure to utilities, real estate or consumer staples.