March 1, 2024

By Clint Gharib

Growing up I cherished watching Schoolhouse Rock.  Decades later, many of those lyrics and images still come to mind.  One of my favorites has been running through my mind for many months now when looking at the markets: ‘Interjections!

Like in the video, we’ve seen investor sentiment playing out from the sad (Aw), frightened (eek), mad (Rats), excited (Wow!) to glad (Hey!).  Yes, I am singing it while typing this out.  In the midst of a market downturn it’s hard to think it’ll end soon.  But as CFRA Research (formerly S&P Global Research) pointed out in its  ‘The Outlook’ this past Jan 1st, “Since 1946, the S&P 500 posted a positive annual price return 71% of the time.”  US Stock markets, especially technology stocks, have jumped up the past few quarters with artificial intelligence (AI) induced revenue growth bursting onto the scene since last summer.  Make no mistake though, since October of 2023 the rally has been broadening out.  In last month’s Argus Update, Argus’ Jim Kelleher (Dir. Of Research) wrote: “Based on data from Bloomberg, Refinitiv, and FactSet, 80% of companies are beating EPS expectations; usually that number is below 70%. And the magnitude of the beat is also above average, in the 6%-8% range.”  This is a welcomed change from 2023 when only 7 stocks made over 50% of the S&P 500’s total return by the end of September and the other 493 stocks advanced just 5% according to Tim Fries at ‘The Tokenist’ published 9/26/23.

Okay so now that stocks have bounced back form the drubbing in 2022, you’re likely more concerned with what do I think we can expect form here.  Again, the video for Interjections comes to mind.  I look at the traders and investors like Reginald getting much needed medicine and Geraldine paying hard to get to Geraldo’s advances while Fed Chairman Jay Powell could be seen as the doctor giving the shot or Geraldo wooing… “Interjections/ “Well! You’ve got some nerve! Oh! I’ve never been so insulted in all my life! Hey! You’re kinda cute!”.  This is where I see the markets now: glad that the medicine was delivered, and that the Fed did the hard thing with rate hikes.  With the excitement winding down from the end of this past earnings season, it’s only natural that we can expect a slight dip because of profit taking, but I do not believe this is an outright  sell.  Rather if a dip happens, I think it could be short lived for several reasons:

  1. there are many who remain bearish and have missed much of this recent rally
  2. there is near record amounts of cash on the sidelines even at the current market highs.  I doubt all of that or even half of the cash will change into stocks as long as money markets are paying 4-5% but if only a 10-20% of it does move into stocks, we could see a renewed rally. 
  3. Many companies will still have easy year-over-year comparisons for the first quarter.  So year-over-year comparison likely can show attractive growth again.
  4. I think earnings can beat estimates broadly across industries again in Q1.
  5. I thin rates will stay flat with the Fed neither raising nor lowering rates

Thus for these reasons, I feel stocks still represent one of the most attractive places to be invested for risk-appropriate investors seeking upside potential.

Looking ahead to Q2, earnings growth rates look less rosy due to year over year comparison being tougher plus the anxiety over a drama-filled election season will weigh also.  Though I expect rates will remain high and cash will offer attractive rates still making it a warm and cozy place to possibly hide-out during the drama ahead of the election.  Barring a drawn-out election like we had in 2000 (hanging chad’s ring a bell), markets historically have gained once they know the make-up of Congress and the White House.

In summary, I expect a continued rally in stocks due to positive earnings through the next quarter, hiding out in attractive cash rates for a few months and then looking to adjust allocation post-election.  Regardless of the market interjection at the time using a comma or an exclamation point, I continue to let the data (e.g. earnings, cashflow, & interest rate trends) guide my investing decisions.  I encourage you to contact me to discuss your account and/or situation at your convenience.   I truly appreciate the trust and confidence you have shown in me by employing me as your advisor and strive daily to work for your interest.  I wish you a blessed and peace-filled March. 

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