Why a Strong Year for Stocks Will Just Get Stronger

Apple’s reported revenue beat Wall Street expectations last quarter. The company’s stock has risen 14% over the past 12 months. (Aaron J. Thornton/Getty Images)

About the author: Louis Navellier is founder and chief investment officer of Navellier & Associates, an SEC-registered family office that manages more than $1 billion in assets.

My forecast is the U.S. equities market will advance another 8% by the end of the year, for a return in 2025 of about 21%. Further, I expect the market to advance another 18% in 2026. In the topsy-turvy world in which we find ourselves, frankly, anything could happen. But barring a black swan event, that is what I expect.

Admittedly, an 8% run through the end of the year would be a big move. But half of that growth is easy to forecast: Over the past 20 years, the market has advanced an average of 3.95% in October, November, and December, according to data from Bespoke Investment Group. Over the past 50 years, the trend is even stronger, with October, November and December delivering an average return of 4.24%.

Yes, the federal government is shut down. But shutdowns seldom hurt the equity market. In the six government shutdowns since 1990, the market was off just half of the time one week after the shutdown. Just once was it still down three months later. In the 2018 shutdown, the market was off by 3% three months later later. In the 2019 showdown, it was up 16%.

History aside, I believe the stage is set for a strong year-end rally. Part of this is mathematical. The other part is just reading the tea leaves of economic data.

Mathematically, the year-over-year earnings forecast is (coincidentally) 8%. This growth will become evident in earnings reports that start in about two weeks. But the forward price/earnings ratio is growing. It is now standing at 22.5—well above its five-year average—and this means the impact on share prices is magnified when earnings increase. This premium P/E ratio isn’t unreasonable considering that earnings surprises are running at an 8.8% annual pace, the highest in almost four decades, according to Ed Yardeni of Yardeni Research. Plus, Treasury bond yields continue to meander lower.

A dividend discount model would demand a P/E ratio of 20 with static earnings if Treasury bonds yields were at 5%. Since Treasury bond yields are under 5%, earnings are growing at a double-digit annual pace, and earnings surprises remain strong, a P/E ratio of 22.5 for the S&P 500 remains more than reasonable, especially in light of another stunning earnings announcement season commencing in October.

But there is also strong evidence that U.S. economic growth is resurgent. Leave aside conflicting signals from mixed economic data. Consumer spending isn’t mixed—and it is sending a very strong signal. In the last round of figures from the Bureau of Economic Analysis, consumer spending grew at a healthy 0.6%, while personal income and disposable personal income grew at just 0.4%.

Clearly the consumer feels confident. Remember, 70% of U.S. gross domestic product comes from consumer spending. In China, consumers can pull in their horns without much overall impact because it is an export economy. But here in the U.S., our economy relies on the consumer. And right now the consumer is giving GDP a strong tailwind.

When personal consumption exceeds personal income, it means consumers are taking on more debt. This may create a problem that we will need to reckon with another day, but for the moment, it is contributing to growth and optimism.

And economic growth is strong. Right now, the Atlanta Fed estimates GDP growth at 3.8%. But I believe that a 5% growth rate is achievable in 2026. It will come from the impact of on-shoring—yes, it is really happening —as well as productivity gains from AI and a resurgent dollar. That growth expectation is getting baked into portfolios now, and it is driving the risk-on trade that will carry the S&P 500 to new highs this year.

The U.S. is an oasis for investors in a world in chaos. Europe doesn’t appear to be as stable an environment for investment. Britain and France are expected to have leadership changes due to political gridlock. Brussels is opposing anti-EU political movements in Romania, Poland, Germany, Italy, and France. Its meddling is threatening EU unity. The fines Hungary and Poland are paying to Brussels for closing their borders will actually cost less than the social cost of supporting refugees who aren’t being assimilated. Meanwhile, Italian Prime Minister Giorgia Meloni remains on the warpath to stem immigration.

In Asia, deflationary forces are at work as China continues to flood the world with its manufactured goods. Further, population declines in China and Japan are undermining growth throughout the region.

Equity fund flows are testimony to my oasis thesis. These fund flows declined sharply in the spring as tariff uncertainty reached its peak. But now that none of the anticipated side effects, such as inflation and business disruption, have materialized, foreign flows into equities are increasing. Last week, the weekly flows from abroad into the U.S. equity funds hit a new high of $58 billion. These fund flows will continue to drive equity prices.

Fund flows in government securities are also instructive. For instance, Great Britain, which held about $733 billion of U.S. government securities last summer, now holds $899 billion. The United Arab Emirates, which held $69 billion in U.S. government assets, now holds $107 billion. The Cayman Islands, which attracts money from all over the world, had $439 billion in U.S. government securities, up from $380 billion. Chinese holdings are down, but this may be due to political, not economic reasons.

So, yes, my forecast of an 8% rally in equity through the end of the year is a big number. But it has history on its side. And more than history, there is robust GDP growth, strong consumer spending, and steady inflows from global investors. In short, equity investors should be ebullient because we are locked and loaded.

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