Current Market Outlook
Posted on October 23, 2024
As we approach the end of another decidedly strong year in US markets, it bears noting that 2024 holds a great similarity to 2023, insofar as the key themes driving performance. Equities are hovering near all-time highs, buoyed by optimism that Artificial Intelligence (AI) will propel revenue, earnings, and productivity gains for both the enablers and adopters of these technologies. Paired with the rate-cutting cycle that the Federal Reserve (Fed) embarked upon in its September meeting, this should provide an accommodating backdrop to equities for the balance of the year.
There are 50 days between the conclusion of the Fed’s September and November gatherings, the longest such inter-meeting period of the year, and one that occurs at a time of many potential squalls on the horizon, particularly heightened tension and uncertainty on the political, geopolitical, and economic fronts. The Fed strives to be politically agnostic, and we expect it to continue to make decisions solely on the data. Market expectations for rapid future rate cuts had become aggressive of late, with inflation on the wane, just as the Fed’s other mandate of full employment began to reflect increasing softness over the summer.
The bumper September jobs report upended that narrative yet again, and rate-cut expectations have tempered in recent weeks, which would normally be a headwind. But we have seen this type of dissonance between the market and the Fed throughout 2023 and 2024. Each time, rate-cut hopes have been dashed, but the market has powered on. One welcome point of contrast in 2024 to last year is the participation by sectors beyond those where the major AI players reside, Tech and Communications. Last year at this time, just 3 of the 11 major S&P sectors had year-to-date returns above 5%; this year, 10 of 11 sectors have returned above 10%. Earnings have also been more broadly supportive in 2024—the S&P 500 is expected to grow earnings by 10% this year, compared to just 1.6% in 2023.
In evaluating the extraordinary performance of US markets, one cannot help but make a comparison with the US’s chief rival, China, amid its economic and financial struggles in the post-Covid period. While for many years China reigned as the world’s growth engine – often accounting for more than 30% of global economic growth as well as the destination for much of the world’s foreign direct investment (FDI), and an equally superlative stock market, the script has reversed of late. In 2022 and 2023, the US delivered almost half of the world’s global growth, while China in fact detracted from global growth by 0.3%. While perhaps less stark, these favorable comparisons can be made for the US relative to virtually every other global peer. The US remains the unchallenged leader in innovation, technology, R&D, management talent, corporate transparency, complemented by deep and liquid capital markets, a flexible labor supply, and critically, the rule of law and robust regulatory oversight.
So should we encounter any choppiness in the period ahead, we would remind that the US has the best house in the neighborhood, by some distance. Our team of portfolio managers will remain attuned to revenue and earnings growth, and fundamental relative value, the pillars of our investing philosophy at The Trust Company.
Kristian R. Jhamb, CFA
Chief Investment Officer
The Sanibel Captiva Trust Company
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