January 27, 2025

The U.S. stock market had one of its best years ever last year.
As of this writing, the S&P 500 was up over 25% for 2024. It marks two consecutive years the S&P 500 had 20% gains or more.
If it does it in 2025 too, it’ll be only the second time in history the S&P 500 delivers annual gains of 20% or more in three straight years. The only other time it happened was the late 1990s leading up to the dot-com bubble.
But there’s a problem. Future earnings are trending downward.
Since July, consensus analyst estimates for next year’s S&P 500 earnings have trended down. As of last month, analysts increased their 2025 expected earnings by 1% compared to a 28% gain in stock prices. That means 2024’s stock gains came from investors paying more for the same amount of earnings, not the expectation of future growth.
Based on the current consensus, the S&P 500 trades at roughly 22 times its forward price-to-earnings ratio. That’s the valuation level where the market peaked in November 2021, and just 12% below the 25 times forward multiple reached at the height of the dot-com bubble.
Seeing this, corporate insiders are cashing out. The ratio of insider selling to buying reached the highest level in over two decades.
In the past, this has been an early warning indicator of market turbulence.
Conversely, retail investors have never been more euphoric. The November Conference Board Consumer Sentiment Survey revealed 56.4% of consumers expect higher stock prices ahead (a new record high).
“Big money” is getting out, moms and pops are getting in. I’m not sure this will end well.