Be ready for the broadening
Nasdaq, Dow up modestly; S&P 500 edges green
Cons Disc leads S&P 500 gainers; Cons Stps down most
Dollar slips; crude up; gold, bitcoin both up >1%
U.S. 10-Year Treasury yield falls to ~4.28%
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BE READY FOR THE BROADENING
The S&P 500 is on track to deliver a strongly positive performance for the first six months of the year, fueled by a rally in the market’s largest names.
As H1 is coming to an end, the benchmark index is up nearly 15% YTD.
That said, Jack Ablin, chief investment officer and founding partner at Cresset, is saying that the 100 stocks with the largest market caps gained nearly 14% on average during the first half, while the smallest 100 stocks fell nearly 5% on average.
"Much of the divergence is attributable to a 'higher for longer' interest rate environment. Investors reckon that mega-cap tech companies – thanks to their ability to generate cash – are less reliant on borrowing and, those companies that need to borrow have much easier access to capital than do their smaller brethren," writes Ablin in Cresset's 2H 2024 Market Outlook note.
So, where does Ablin think markets are headed in the second half of the year?
According to Ablin, given market concentration, the S&P 500 index's .SPX direction is going to be heavily dependent on the futures of its top companies.
Valuation issues are another concern, but Ablin believes the average stock in the S&P is "more fairly priced and the 'S&P 495' could lead the way higher in the second half."
In fact, Ablin believes there may be opportunity in quality small caps as the bar for outperforming analysts’ earnings estimates is low in today’s environment.
Cresset also expects the dollar to remain strong, providing another boost for small companies, particularly those firms that import their goods and sell them domestically.
Ablin says that equity markets have tended to be "quiescent" in election years, and he expects easing interest rates to provide a risk-on tailwind.
Ablin's bottom line is that equity markets should broaden as investors sense rate cuts on the horizon.
"While the Fed is currently satisfied with standing pat on monetary policy, we believe the future path of interest rates will depend on 'wealth effect' contributors, like the housing market, job market and the stock market," he writes.
(Terence Gabriel)
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