02/26/2024 Market Strategy
Back to the Future
Better than expected earnings drive the Dow Industrials and S&P 500 to new record highs
Key Takeaways
- With 450 or 90% of the firms in the S&P 500 index having reported, results have been generally stronger than expected. At this late date in the season, earnings are up 7.2% from a year earlier on 4.2% revenue growth. Prior to the season’s start, a bottom-up analysis put expected growth at 1.3% YoY.
- The S&P 500 is up 6.7% in 2024 through February 23, with nine sectors posting positive returns. In our view, this shows a continuation of a broadening in the rally that began on October 27 of last year.
- Data from Russell Associates show that growth stocks lead value stocks across all market cap segments thus far in 2024.
Stocks stateside begin this week with the S&P 500 and Dow Jones Industrials having closed at new record highs last Friday. As Q4 S&P 500 earnings season begins to wind down with just 39 companies scheduled to report this week, market participants are likely to focus a good deal of attention on a heavy tranche of economic data scheduled to be released this week, US Treasury auctions, and comments from Federal Reserve officials around the country.
This week’s stateside economic calendar includes a wide brace of data that should shed light on GDP, manufacturing, services, housing, consumer confidence, inflation, retail sales, and inventories. In our view, this is further evidence of a broadening in the rally that has carried forth from late October 2023 into this year, pushing all of the S&P 500’s eleven sectors higher last week.
A combination of revenue and earnings results for the S&P 500 that have broadly exceeded expectations along with some positive corporate management guidance has raised investor sentiment towards stocks even as markets have had to digest the likelihood that the Federal Reserve will remain highly vigilant regarding sticky inflation when it comes to considering if, when, and by how much it might cut interest rates this year.
A modest slip for the NASDAQ Composite last week suggested that some profit taking may have begun among technology names that have led the rally from last year. In our view some profit taking amidst information technology or tech-related stocks that have led the rally should be viewed by investors as healthy -- particularly should sectors that have lagged the market’s sizeable run-up continue to gain further positive attention from investors.
In the international realm, gains in the developed international markets including the first new record high for Japan’s Nikkei 225 since 1989 suggests to us a “breaking in the ice” that points towards a global normalization waiting in the wings led by the US.
While economic growth remains challenged in Europe and in Japan, central bank activity in those regions appears to be on course to follow the path of the US Federal Reserve to address problems which have vexed those developed economies since the pandemic.
In our view the process of re-globalization to diversify the global supply chain away from one-country centricity should be a positive factor in generating improved global economic conditions across both the developed and emerging countries of the world.
Patience, prudence, diversification, knowing what one owns, why one owns it, and with an overlay of right sized performance expectations remains our preferred stance in weighing opportunities and risk on the global landscape.
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