Building Blocks
10.25.2024
Equity markets continue to prod new highs with the help of a strong labor market, lower inflation, easier monetary policy, and robust corporate earnings. Despite the geopolitical noise at home and abroad, the foundation for stock market performance is solid. There are certainly risks, but consumers are still working and spending at a healthy clip. This is the most important variable in an economy driven 70% by the consumer. We are mindful of some challenges ahead, but the environment for stocks is constructive.
Economic data has been consistently pointing to an economy that is stronger than many believed. Payrolls and retail sales have surprised to the upside; there have been significant upward revisions in incomes and output, jobless claims are down, and inflation is trending lower. This is good news, but bears are watching. Market participants have had to adjust their outlook for further cuts to the Federal Funds rate.
Though the Fed is working on normalizing interest rates, an unexpectedly strong economy will force a slower pace. This is okay, but the Fed needs to be careful that a hot economy does not kickstart a resurgence in inflation.
At the company level, corporate earnings remain a bright spot. We are a little less than halfway through the Q3 season, but the early results have been strong. Earnings and sales for the S&P 500 have surprised to the upside by 6% and 1%, respectively. Three-fourths of companies reporting so far have beaten their earnings estimates. The upward revisions we have seen in broad economic growth are coming through in individual company reports. Looking ahead, analysts continue to expect earnings growth just shy of 10% in 2024 and a little over 15% in 2025. This remains a powerful catalyst for equities.
Lastly, the election is just over 2 weeks away. It is a tight race and will come down to the finish. We do not know who will win, but we do know that companies adjust. CEOs are paid to manage their companies through any environment. We remain focused on holding those companies that have a demonstrated history of navigating these waters and coming out stronger on the other side.
Thanks,
Preston May, CBE®
Research Analyst
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S&P 500: Standard & Poor’s (S&P) 500 Index. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad U.S. economy through changes in the aggregate market value of 500 stocks representing all major industries.