3rd Quarter Equities
Investors were actually jumpy and uncertain in the early part of the quarter. But the decision by the Federal Reserve to cut interest rates by 50 basis points set off a powerful September rally with breadth across the market. We saw the best first 9 -month performances since 1997.
The S&P 500 was ahead 5.89% for the quarter and 22.08% for the year-to-date. Significantly, growth in the quarter was spread among all sectors with only energy being negative. Eight sectors outperformed technology. Some of the skepticism about technology was seen in the Nasdaq Composite which was ahead just 2.76% for the quarter and 21.84% for the year.
In contrast, the Dow Jones Industrial Average was up 8.72% for the quarter and ahead 13.93% for the year. The Russell 2000 index of small business stocks was the market leader with a gain of 9.27% for the quarter and 11.17% for the year. Small-cap stocks do well where there is confidence in the broader economy.
The Market
Given the positive economic picture, the average corporate earnings growth among S&P 500 companies is forecast to be 10% in full-year 2024. It will be the fastest rate of year-over-year earnings expansion since 2021. These strong earnings contribute greatly to the bullish outlook for the stock market. That said, some major companies have reported disappointing earnings. At this stage in the bull market, investors need to distinguish between winners and losers. We have this focus at Hudson Advisors.
On a trailing basis, the S&P 500 is trading at a P/E ratio of 24.77. That is well above its long-term average of about 19 – but close to its five-year average of 24.46. So, we have been living with richly priced stocks for several years now. Our major concern at Hudson Advisors is that rich stocks can collapse quickly in the face of “black swan” events. Thus, we are continuously vigilant for geo-political situations that can disrupt the market.