by Xinhua writer Yanan Liu

NEW YORK, Dec. 26 (Xinhua) -- Though a "hawkish" rate cut by the Federal Reserve recently plunged the U.S. stock markets, the overall performance of major indices and the group of "Significant Seven" rebounded and hover around near record highs amid hopes for a Santa Rally at the turn of the year.

With the upcoming inception of the second Trump administration, investors forecast both a substantial correction in the first half of 2025 and material growth by the end of 2025.

ROBUST GAINS TARNISHED BY BIG SELLOFF

U.S. major stock indices recorded handsome growth and refreshed record highs scores of times so far this year driven by euphoria on application of artificial intelligence (AI) and mega cap tech stocks.

The Nasdaq Composite Index gained 33.44 percent so far this year as of the closure of the market on Friday. The tech heavy index topped 20,000 points for the first time on Dec. 11 and made record closing highs for 38 times.

The S&P 500 Index increased by 26.63 percent so far this year as of Friday with record high posted on as many as 57 trading sessions.

The all-important index topped the key level of 6,000 points on Nov. 11 but failed to reach 6,100 points as of now.

The Dow Jones Industrial Average, comprising 30 stocks closely related to the real economy, recorded 24.88 percent of growth so far this year as of Friday. The 128-year-old index hit 40,000 points for the first time on May 16 and topped 45,000 points on Dec. 4.

Notably, the Dow recently saw losses for ten consecutive sessions, the longest losing streak in half a century.

As Federal Reserve officials met for the last monetary policy meeting of 2024, they materially lifted their forecast of inflation and slashed the forecast of rate cuts by 50 basis points in 2025.

The hawkish turn awakened investors immersed in complacency and triggered heavy sell-off on the market with the Dow Jones Industrial Average lost over 1,000 points on Wednesday.

The pullback was "healthy", according to Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania.

The market was overly optimistic and "I am not surprised at the sell-off," said Siegel. The stock market has been in almost a runaway situation and the selloff brought investors to reality that interest rates are not going to go as low as they thought, according to the expert.

"So many people think that which was so overdue to have a 5 percent to 6 percent correction that we would likely see that," said Timothy Anderson, managing director with MND Partners, division of TJM Investments, LLC.

Anderson recently told Xinhua that he would not be surprised to see a correction in the first quarter of 2025, even at some point in January.

HEFTY PRICE TARGETS RAISE CONCERNS

Currently, mainstream research firms and strategists hold a target of over 6,500 points for the S&P 500 by the end of 2025 on the grounds of resilient economic growth and labor market, solid earning growth and strong momentum in productivity improvement.

The S&P 500 would reach 6,666 points by the end of 2025 with earnings per share from S&P 500 member companies to grow by 13 percent next year, according to Savita Subramanian, BofA's chief U.S. equity strategist.

Improvement in productivity and efficiency would push earnings higher over the next several years and really drive the continued outperformance of equities, said Subramanian.

Strategists with UBS Global Wealth Management recently forecasted that the S&P 500 would reach 6,600 points by end-2025 amid a positive outlook from a macroeconomic, structural, and bottom-up perspective.

"I've heard some people say 7,000. I think that's a reasonable target," said Anderson, referring to the price target of the S&P 500 by end-2025.

The impacts of AI application from individual companies may show up toward the middle of next year though companies' earnings have not reflected productivity growth from AI application, according to Anderson. The forecast of ever-rising stock indices itself serves as a warning sign and a contrarian indicator for the fortunes of the bull market.

Current market conditions are reminiscent of 1999, according to Travis McCourt, an analyst with Raymond James.

"Arguably equities are not as speculative as they were in early 2000, but it certainly feels eerily similar to 1998 or early 1999," said McCourt.

The bubble in the U.S. stock market could pop unexpectedly and investors should be prepared, warned Ruchir Sharma, chair of Rockefeller International, a global investment firm.

"In the late stages of a bubble, prices typically go parabolic, and over the past six months U.S. stock prices have outgained others by the widest margin for any comparable period in at least a quarter-century," said Sharma in a recent opinion piece in Financial Times.

He added that "all the classic signs of extreme prices, valuations, and sentiment suggest the end is near. It's time to bet against 'American exceptionalism.'" Enditem

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