March 1, 2024

The stock markets have continued their upward trend with the S&P 500 closing above 5,000 for the first time in history. Looking ahead to the next few months, the markets always experience a retrenchment particularly when the forward price/earnings ratio has elevated itself to 20.3, higher than the 5-year average of 18.9.  Technology stocks and ETFs (most of which participate heavily in AI) have even loftier P/E ratios.

The equities markets may be too far ahead of themselves as we enter spring, and we expect to see some profit taking for April taxes and general rebalancing. In the current environment there are currently greater odds of bad news sending the market lower than good news sending it higher.

The Federal Reserve continues its efforts to bring down inflation and equities markets may have already priced the future rate cuts into the lofty stock levels. The timing of rate cuts will be important to both companies and particularly the consumer. Consumer spending drives about 2/3rds of U.S. Gross Domestic Product (GDP). This makes it one of the biggest determinants of economic health. Data on what consumers buy, do not buy, or wish to spend their money on is a good indicator of where the economy is heading. 

News of delayed cuts will undoubtedly have a dampening effect. Long-term stocks are still the best chance of outpacing inflation and if improved earnings growth continues, we could continue an improved 2024 after a mild pullback. Fundamentals and quality are still the key factors when it comes to consistency; and forward guidance is of greater value than past corporate sales and revenues.

The yield on the 10-year Treasury note has increased to 4.25%, and the yield on the two-year Treasury yield increased to 4.63%. Through the end of February, the major indices closed higher with the Dow, S&P 500, and NASDAQ at 3.47%, 6.84% and 7.20% respectively.

*Disclaimer: This report is a publication of Marchand Faries Financial Management, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgement of the author as of the date of publication and are subject to change.