2nd Quarter News
We take note of the somewhat cheeky comment that the S&P 500 no longer represents the stock market. Indeed, the Magnificent Seven — the big technology names – claimed two-thirds of the S&P 500’s total return for the first half of the year. Nvidia alone claimed one-third of the gain. The investor fascination with artificial intelligence is powerful and will persist into the foreseeable future.
But we like the recent Barron’s Magazine article which basically said: Hold on! The future of the stock market may not belong to these big seven guys. Past decades had market champions: railroads, automobiles, chemicals, communications. Investment history always moves on and the champions of the moment are displaced. We are excited about artificial intelligence and have client monies in the Magnificent Seven. But we believe in broad diversification as the core of investment strategy.
At Hudson Advisors, we are positive on the stock market for the second half of the year. We are amused that it is difficult to find a bearish analyst right now. Market veteran Ed Yardeni called this the time of “a slow-motion melt-up.” The conditions for continued market gains are evident. The outlook for corporate earnings is strong despite uncertainties about the economy and inflation. The benefits of AI will soon spread to other sectors of the economy. Many companies are undervalued, and we will look for client opportunities that have been brewing under the surface in other pockets of the market.
The Economy: From the broadest perspective, the U.S. economic rebound from the pandemic era has been successful. We have experienced a healthy labor market, resilient household demand, and strong business investment. Yes, inflation is a problem, and it spurred tight monetary policy from the Federal Reserve Board. But higher interest rates did not cause the much- predicted recession. Instead, we achieved the goal of “soft landing” in which inflation is subsiding – albeit still not tamed – and GDP is expected to grow about 1% in full-year 2024.
The recent Congressional testimony of Fed Chairman Powell is revealing. The Fed is determined to achieve its dual mandates of full employment and price stability. It is done raising interest rates and will begin to lower rates once evidence of reduced inflation is more established. The U.S. economy is the best globally, Powell said. In response, the S&P 500 topped the record level of 5,600 as traders bet on Fed rates cuts this year.