11/11/2024 Market Strategy
Going Through Them Changes (Again)
Good Fundamental Factors and Market Performance Move Us to Raise our Price Target (Again)
Key Takeaways
- We are raising our price target for the end of 2024 to $6,200 (from $5,900) while leaving our earnings estimate unchanged.
- With 453 or 90% of the firms in the S&P 500 index having reported earnings thus far, results are showing a robust third quarter. Profits in Q3 overall were up 7.1% from a year earlier on 5% revenue growth.
- Eight of the 11 sectors have positive earnings growth, with five at double-digit rates. Three sectors are showing declining earnings, with one (energy) falling at double-digit rates.
- Last week’s decisive election result removed an uncertainty hanging over markets for some months. US stocks staged a “sigh of relief” rally while gold prices eased from their record highs of October. The Fed’s 25 basis point rate cut on Thursday also boosted investor confidence.
- This week brings reports on consumer and producer prices for October as well as retail sales. Another 11 firms are due to state earnings as the Q3 reporting season winds down.
For the third time this year we are raising our price target for the S&P 500 while leaving our earnings projection unchanged.
Last December 11 we initiated a 2024 year-end price target for the S&P 500 of 5200 with an earnings projection of $240.
At the time we initiated the 5200 target price it was said that our target was the highest price target on the street according to Bloomberg’s survey of Wall Street strategists.
Three months later—by early March of this year the S&P 500 had closed at a level above 5200 exceeding our year-end target price for the S&P 500.
On March 25 following our self-imposed discipline (which calls for us to wait until the benchmark closes at or above our target price before considering raising our target price on the benchmark) we reviewed economic and market conditions once again and increased our price target to 5,500 as well as raised our earnings projection to $250. Once again our target was said to be the highest on the street.
In July of this year the S&P 500 closed at a level above 5500 exceeding our earlier upward adjusted price target of 5,200. On July 7 we raised our target to 5900 and kept our earnings projection at $250.
Now just four months later we are once again adjusting our 2024 year-end price target moving it from 5,900 to 6,200 or some 3.4% higher from where it closed at 5995 last Friday, November 8. We are maintaining our earnings projection at $250 suggesting a forward P/E multiple of 24.8x. (See page 12 of this report for details on current market valuations).
Economic fundamentals, earnings and revenue growth, the resilience of the consumer, along with Fed Monetary policy collectively also suggest to us that further upside in large cap stocks remains likely through year-end even as the current rally in equities appears likely to further broaden boosting the performance of mid cap and small cap stocks.
Beyond trader induced momentum intermediate and longer-term investor sentiment, significant levels of cash reported to still remain on the sidelines suggests to us that the current bull market has legs to run through the end of the year notwithstanding any catalyst that could bring about some near-term selling and profittaking by bears, skeptics, and nervous investors always ready to find opportunity to sell “without FOMO” midst a bull market that has and continues to show considerable resilience in dealing with uncertainties that might emerge in its path.
Wait and See Before Jumping to Conclusions
With the results of the 2024 election now in large part known (with which party will control the House of Representatives still awaiting final vote counts) the market has rallied notably from election day (Nov. 5) through last Friday (Nov. 8) much in the form of a “sigh of relief” rally as election day outcome uncertainty and nervousness ended with a decisive election result that removed an uncertainty hanging over markets for months.
Over the three days of trading since Election Day, Nov. 5, the S&P 500 stocks rose 3.7% through Friday Nov. 8. Investors have bid up prices of several cyclical sectors including consumer discretionary, financials, industrials and information technology. The four defensive sectors were among the five worst performing of the eleven sectors.
In our view investors could well benefit from practicing patience and avoiding jumping to conclusions as to how the election outcome will affect the markets. We favor broad diversification tuned more to cyclical and secular trends that remain in place for now rather than “betting” on the shape of things to come as a direct result of the elections that just took place.
Ultimately the stock market focuses on the health of the economy, revenue and earnings growth, the potential for innovation to drive earnings and the effect of monetary policy on the economy (particularly on business and the consumer).
With the Fed having begun the process of cutting its benchmark rate equities appear well positioned to benefit as interest rates likely move somewhat if not much lower over the months ahead.
We remain positive on equities and look for opportunities including those that offer the potential for total return (capital appreciation and dividend income). As Q3 S&P 500 earnings season nears a close once again, large cap stocks have shown the ability to exceed consensus expectations with results.
Current yields in fixed income (the bond market) suggest to us an environment where bond issuers now once again are having to pay for the privilege of borrowing money providing bond buyers an opportunity to get something in return in the form of attractive yields compared to the last decade.
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