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Weekly Market Analysis - Mid-Year Myopia – Zoom Out for the Big Picture

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3 Things to Know

Mid-Year Outlook:  Global Growth is a Bright Spark

In our Wealth Outlook 2024 Mid-Year Edition, we made several predictions coming into the year: 1) Global growth is improving, 2) US employment growth will slow, 3) Another reversal in policy from the Fed is coming, and 4) Corporate profit growth and breadth is improving across the world.

An Opportunity to Consider Equities Presents Itself

While equities have rallied to reflect these same views, investor confidence is actually “thin” and subject to swift changes in sentiment. Absent a contraction in profits, inter-year swoons in equities present a potential opportunity.

Recent US Employment Data Isn’t As it Seems

Headline US employment data for May bucked a seasonal trend of disappointing spring readings. This has set back bond investor expectations for a Fed pivot once again. Nonetheless, a moderation in the US labor market is clear when you “zoom out.”

The 2.8 million US jobs added at US employers over the last year is the weakest gain of the cycle thus far. Unfilled job openings have declined from 12 million to 8 million. The separate “Household Survey” shows an unusually marked contrast with the survey of employers. The US unemployment rate has risen from a low of 3.4% to 4.0%.


As we launch a mid-year update to our Wealth Outlook 2024, the past half year has seen the S&P 500 return 18.5%. We don’t expect an annual return of 37%. Yet as we noted three weeks ago in our CIO Bulletin, investors would harm their long-run performance if they attempted to invest only in depressed market conditions and refused to stay invested for the bulk of economic expansions. 

After the rally from late 2022’s lows, we take a more discerning approach to equities. In our view, markets now price in continued economic expansion. However, we expect broadening gains for corporate earnings per share (EPS) across more regional economies in 2024. This broadening should enable a wider range of stocks to outperform the highly concentrated S&P 500. 

Portfolio considerations

In our view, markets now price in continued economic expansion and decelerating inflation. What is not priced in is a broadening of corporate earnings gains that should enable a wider range of stocks to outperform the highly concentrated S&P 500. As we highlight in our Mid-Year Outlook, we continue to outline investing in Unstoppable Trends like AI and longevity, as well as seeking opportunities aligned to the fragmentation of supply chains and risk-mitigating steps associated with geopolitical polarization. For the fixed income portion of an average investor’s asset allocation, we see value in high-grade intermediate-duration US bonds, with last week’s selloff an opportunity.


Source: Factset as of June 5, 2024. The blue bars indicate the lowest percent of constituents that outperformed the index in this time period. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees, or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary.

Mid-Year Outlook: Global Growth is a Bright Spark

As we head into a seasonally softer period for market performance, many could lose sight of potential long-term investment opportunities with eyes glued to short-term performance. Last week’s US employment news for May presents such a challenge with “too hot” and “too cold” data in one report. Just the opposite of April, the May employment report’s headline showed a hiring gain nearly 100,000 above consensus estimates (with a base of 159 million employees). The data threw cold water on the view that the Fed would follow the European Central Bank and central banks of Canada and Switzerland in dialing back the sharp policy tightening steps of 2022-2023 anytime soon.

While news that growth persists is welcome, we would share caution in assuming much from sample-based extrapolations of monthly data. In short, data-obsessed investors (and policymakers) can be misled. As part of diversification, we favor exposure to assets that directly relate to some of the challenges the world faces. Geopolitical risk, for example, is prompting some countries to bolster their economic security, such as their access to semiconductors and energy, while also ramping up their military capabilities and readiness for cyberattacks. Select investments across defense, traditional energy, cybersecurity, and technology may perform better alongside deteriorating geopolitics. The global economy’s normalization and growth are cause for some relief, after the extreme distortions that went before. However, we recognize that neither the economy nor markets present “ideal” conditions. At the same time, we see many possibilities as we navigate this environment and seek to preserve and grow wealth. Resilient portfolios are our response.

An Opportunity to Consider Equities Presents Itself

After the rally from late 2022’s lows, we take a more discerning approach to equities. In our view, markets now price in continued economic expansion. However, we expect broadening gains for corporate earnings per share (EPS) across more regional economies in 2024. This broadening should enable a wider range of stocks to outperform the highly concentrated S&P 500. While in 2023 just 29.5% of stocks beat the US large cap index, this year 46.7% have done so – a trend we expect to continue into 2025.

Broadening strategies are also compelling on a valuation basis. While in most years profitable small- and mid-caps trade at a premium to their large cap peers, today the S&P 1000 SMID index trades at a 23% discount to the S&P 500. Improving macro signals in Europe and Asia could be a catalyst for a catchup in shares outside the US.

Recent US Employment Data Isn’t As it Seems

In May, the Bureau of Labor Statistics (BLS) reported that 272,000 new jobs were added. The BLS also reported that 408,000 households lost jobs, pushing the unemployment rate up to 4.0% from 3.9% and 3.4% early last year. That’s

right: the US government said employment both rose and fell in the same month. Because the survey of households is smaller and more volatile, the contradiction is not particularly uncommon. However, because it has persisted for a full year, the gap between the two measures of employment has risen toward a record divergence. As always, tax data and other inputs used to extrapolate new business formation will lead to revisions in the data even as we rely on these to make real-time financial decisions.

The historical monthly changes in nonfarm payrolls have been revised by as much as 300,000 per month. For this reason, the National Bureau of Economic Research – which dates US business cycles – uses an average of the two competing jobs measures to assess employment growth. In our view, the preponderance of evidence is not suggesting an overheating or accelerating jobs market.

In short, we suggest investors look beyond these data anomalies and many other distractions. In addition to worries about data, over the months ahead, we believe markets may become increasingly captivated by the unpredictable US presidential and congressional election results. The choice of US president alone will be critical for US foreign policy, with great importance for security and trade with some countries. However, the result is highly unlikely to dictate the direction of the economy and the overall market opportunity, as the experience of the first Trump and Biden terms suggests. Instead of portfolio paralysis, we suggest qualified and suitable clients may use hedging or structures that may smooth near-term volatility while retaining core portfolios through our fairly upbeat medium-term outlook.


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