For some time, my sense has been that the US stock market will more or less go sideways in 2024.
According to Factset, analysts expect earnings growth of 11% this year to a total of around $245 for the index as a whole. If we decide to apply a 20x PE multiple to that figure (which would be consistent with a 5% long bond), the result is 4900, or slightly below where we are now. If the PE is 22x (implying a 4.5% 10-year Treasury), the target figure is 5390–7%+ higher than where we are as I’m writing this.
The 10-year is at 4.3% now, consistent with a market 14% higher by December. And the Wall Street consensus–which has been strikingly wrong for more than a year–is that any pressure on rates is to the downside. On the other hand, it’s thinkable that a guy who paints himself orange very day, who represents a party for which performative cruelty is the signature move, who choked when covid appeared, who instigated an insurrection when he lost in 2020, who’s on trial for numerous felonies… could nevertheless easily be voted back into office. On the bright side, he does appear to be taking weight-loss drugs.
For what it’s worth, I don’t think politics plays much of a part in today’s S&P, other than to serve as a lid on possible upside.
In sum, sideways for now. …and personally I’d take sideways any day of the week.
If that’s correct, outperformance will come in two ways, I think. One is positive earnings surprises. The other is changes in the market’s concept of how the near future will play out.
So far this year, the strongest positive earnings surprises have come from Energy, IT, Industrials and Staples. Real Estate, Materials and Financials have been the weakest sectors.
Industrials are by and large suppliers to Consumer Discretionary firms, so in a sense they’re a proxy for the latter. The others in the plus column are all industries with substantial operations outside the US. The minus column is mostly US-oriented. Those sectors are being hit, I think, by property market problems, as well as the longer-term issues of an aging population and lack of productivity gains.
Conceptually, I don’t see why the stock market shouldn’t continue to play out along the same lines for a good while.