05:31 AM EDT, 10/15/2024 (MT Newswires) -- US stock market gains have come on the back of "solid" economic data and the policy shift from the Federal Reserve, but earnings estimates for next year need to grow for continued gains, according to a note from D A Davidson.

Through Oct. 11, the S&P 500 has closed at 45 new highs this year, according to the note. The S&P 500 and the Dow Jones Industrial Average touched new intraday record highs on Monday. The Nasdaq Composite is also hovering close to its all-time high.

The solid data investors have liked included consumer spending, business investment and lower inflationary trends. The Fed cut interest rates by 50 basis points in September, kicking off its easing cycle, which will likely continue in the months ahead.

"This has stoked a surge in investor sentiment, driving equity prices and valuations substantially higher in 2024," James Ragan, director of wealth management research at D A Davidson, wrote in the note late Monday.

As of Oct. 11, the S&P 500 2024 FactSet consensus earnings estimate was $239, up more than 10% from $217 in 2023, and the 2025 consensus was $274, which is almost 15% above the 2024 estimate.

The S&P 500, at 5,815, the closing level on Oct. 11, traded at 24.3 times its 2024 earnings estimate and 21.2 times the 2025 estimate, the note said. The average forward-year price-to-earnings multiple over the past 10 years was 17.7 times. Two years ago, the 2024 S&P 500 EPS estimate was $258, which is higher than it is now, and the 2025 EPS estimate was $269, a touch shy of the current 2025 estimate.

"Investors are comfortable paying a higher multiple in 2024 as data improves, but we would like to see earnings expectations rise more to support further gains ahead," Ragan wrote. "While sentiment is high and the current equity market trend is positive, absent a lift in 2025 earnings estimates, we believe upside is limited."