2nd Quarter Equities
Equity Market: Investors in 2024 have seemed less concerned about the outlook for the economy, inflation, and interest rates. The big driver has been eagerness to own a piece of the AI charged future. This eagerness pushed the S&P 500 steadily higher. But it is important to note that 200 companies, or 40 percent of the index, are more than 10 percent below their highest level for the year. Investor enthusiasm is indeed very concentrated.
The S&P 500 was ahead 4.3% for the second quarter and 15.3% for the year-to-date. Demonstrating the strength of technology, the Nasdaq Composite was ahead 8.5% for the quarter and 18.6% for the year. In contrast, the Dow Jones Industrial Average was down 1.3% for the quarter and ahead 4.8% for the year. The laggard was the Russell 2000 index of small business stocks with a setback of 3.3 % for the quarter and a gain of only 1.7% for the year. Neither the Dow nor the Russell were able to capture the technology enthusiasm.
The Market: Here is the important economic news for the stock market. Even though GDP growth will be lower than the past two years, corporate earnings are increasing. S&P 500 earnings grew 6% in the first quarter from a year ago. Consensus now sees earnings growing 11.4% in full-year 2024 and 14.2% in 2025. Most significant, 80 percent of the companies in the S&P 500 are expected to report improved earnings. At Hudson Advisors, we take these forecasts as support for our strategy to stay broadly diversified and not just focused on technology.
We do observe that stocks are richly priced right now. The S&P 500 is trading at 21 times its projected earnings in the next 12 months. The 10-year average is about 18 times. Richly priced stocks are sensitive to unexpected events. The market could be set back by the return of higher inflation, all the uncertainties of this quite unusual US election year, all the issues surrounding federal deficits and national debt, or the unsettled situations internationally. Our cautionary alerts are always turned on at Hudson Advisors.