Fed rate cut could be key catalyst for stocks - Cresset
Nasdaq, S&P 500 slide; Dow edges green
Real Est leads S&P 500 sector gainers; Tech weakest group
Euro STOXX 600 index up ~0.6%
Dollar falls; bitcoin, crude up; gold gains ~2%
U.S. 10-Year Treasury yield tumbles to ~4.18%
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FED RATE CUT COULD BE KEY CATALYST FOR STOCKS - CRESSET
While the S&P 500 index .SPX has posted strong headline performance so far this year, underlying conditions reveal a complex and potentially fragile market environment.
The fact that an extreme concentration in a handful of mega-cap tech stocks that has driven returns is well known, but it's also created distortions and challenges for both investors and fund managers.
The S&P 500 is up around 17% so far in 2024, and with this the benchmark index has already scored 37 record closing highs through Wednesday's close (31 in H1).
Here is a chart showing the number of S&P 500 record closing highs per-year from 1928. If the first half pace is maintained throughout the rest of the year, the S&P 500 would score more than 60 record closing highs this year, which would be the most since 70 in 2021:
Jack Ablin, chief investment officer and founding partner at Cresset, is saying that underneath the surface more than half of the S&P 500 constituents – representing about a quarter of the Index’s market cap – are trading more than 20% below their all-time highs.
Thus, Ablin believes that although a handful of mega-caps are overvalued, the average stock is not. And despite similarities with the Y2K tech bubble, he believes the situation is different this time since he says that AI companies generate sustainable profit and liquidity.
Still, "As we enter Q2 earnings season, there will be pressure on the market’s handful of top performers to deliver strong results to justify their elevated valuations," writes Ablin in a note.
According to Ablin, expectations are high for Q2 earnings, with analysts forecasting 8%-9% year-over-year S&P 500 earnings growth, representing the strongest quarterly gain since early 2022.
As a side note, as of Friday LSEG data shows analysts forecast 10.1% year-on-year Q2 earnings growth.
With this, he says he will be watching whether earnings growth broadens beyond tech and communication services. Healthcare profits, fueled by overwhelming demand for weight-loss drugs, will also be on his radar. However, Cresset expects interest rate expenses and waning goods demand among households to weigh on the consumer sectors.
Ablin's bottom line is that the sustainability of market trends will require a broadening of participation as we move further into the second half. With this, he says a Fed rate cut could provide the catalyst for broader equity participation.
(Terence Gabriel)
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FOR THURSDAY'S EARLIER LIVE MARKETS POSTS:
CPI'S DOWNSIDE SURPRISE BODES WELL FOR SEPTEMBER RATE CUT - CLICK HERE
S&P 500, NASDAQ TRY TO EXTEND WIN STREAKS - CLICK HERE
U.S. STOCK FUTURES FLAT, YIELDS SLIDE, AFTER COOLER CPI DATA - CLICK HERE
M&A: SHAKING OFF THE POST-PANDEMIC DOLDRUMS - CLICK HERE
FRENCH ELECTION STILL PRESENTS OPPORTUNITIES - CLICK HERE
NVIDIA CROWDING IS FALLING SHARPLY - UBS - CLICK HERE
EUROPE EDGES HIGHER BEFORE US CPI TEST - CLICK HERE
STOCK FUTURES HINT AT FURTHER RECOVERY BEFORE U.S. CPI - CLICK HERE
COUNTDOWN TO CPI - CLICK HERE
SPXrecordclosinghighsperyear07112024 https://tmsnrt.rs/3xUEaIo
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