Non-farm payrolls printed in line at 142k and the unemployment rate ticked down to 4.2%. The household survey also showed a solid gain of 168k. Interest rates continued to decline with the 10-year rate at 6.8% and S&P futures were flat after being down prior to the report.
The payroll data validates our bullish 6,000 S&P target as job growth of over 100,000 is consistent with a growing economy. We continue to believe that there will be no landing in the US economy as the bond market has already cut rates for the Fed with the 10-year treasury declining by over 100 basis points. This decline has stabilized the housing market with recent new home sales surging and homebuilders confirming that buyer traffic increased significantly during July and August. The housing sector is the hyper-cyclical industry that has caused all 12 post-WWII recessions. We continue to forecast normal economic growth of 2-3% for 2024 and 2025.
We are more confident than ever in our forecast that the 10-year bond rate will decline below 3.5%. This decline in rates is critical to our bullish thesis as every 25 basis points of bond yields impacts the theoretical S&P multiple by 1 point. Our 21x target on 2025 EPS is only reasonable with the 10-year treasury in the 3.25% range. Many bond bears had focused myopically on the ongoing US budget deficit and ignored the power of global monetary policy to drive rates lower. We continue to believe that yield-sensitive sectors such as banks, REITs and preferred stocks will outperform tech for the balance of the year as interest rates continue to decline.
Our 6,000 target assumes that the election results in a divided government. In the case of a Democratic sweep, our S&P target would drop to 5,500 as a likely 25% corporate tax rate impacts both earnings estimates and earnings growth. In addition, the likely increase in capital gains taxes to 28% is extremely likely to trigger a wave of capital gains harvesting before 12/31/24, particularly in the tech sector. We believe that Democratic vs. Republican administrations have minimal impact on the economy or the stock market except in the case where the government is controlled by one party and there is a major change in tax policy that impacts capital formation. Capital formation is the key driver of economic growth and corporate earnings.
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