Did you know that the New York Stock Exchange (NYSE), established in 1792, is the oldest stock exchange in the United States, and it was created under a buttonwood tree on Wall Street?

That was over 200 years ago, and the NYSE is still here today, highlighting the fact that you often need a more long-term perspective when determining the stability of the stock market.

This edition of Equity Eats brings you three pivotal trends:

• Our Bet Is The Bull Continues To Run: First, the S&P 500's ascent by 27% since October indicates a robust market, driven by investor optimism and strategic Federal Reserve stances 🐂

• The Stock Market Is Rallying, Without Help From Big Tech: Next, the market's rally now finds momentum in small-cap stocks, showcasing a diversification from the traditional tech giants' dominance 🚀

• Earnings Are The Key: Finally, amidst inflation and rate cut debates, the spotlight is on corporate earnings, with forecasts suggesting a strong recovery, particularly in the latter half of the year 💵

Join us in analyzing the movements of the stock market, using lessons from history to inform today's investment strategies.

Our Bet Is The Bull Continues To Run 🐂

The stock market is defying gravity, and its stubborn rise is forcing skeptical analysts to shift to a more positive tone.

The S&P 500 has skyrocketed 27% from an October low point.

Valuation multiples are responsible for most of the gain, with the index’s forward price-to-earnings ratio climbing to about 21 times from just over 17 times at the start of the rally 📈

Investors are paying more to own stocks because they expect a couple of key factors to go their way.

Earnings can continue to grow over the next few years as the economy continues to grow.

And the Federal Reserve won’t ruin the party by lifting interest rates further 📊

Instead, it’s more likely to cut rates this year.

The skeptics are that the market has become particularly expensive.

An already elevated multiple means earnings need to grow in line with expectations—or better—for stock prices to hold their ground or keep climbing ↗️

Our bet is that this bull continues to run.

The Stock Market Is Rallying, Without Help From Big Tech 🚀

The stock market continues to rally, without assistance from the big tech companies that have fueled its surge in recent months.

The rally has broadened and small cap stocks have started to lead the way, even on days when some of the high flying Mega Cap Eight stocks such as Nvidia and Amazon stumble.

The skeptics who argued that the market would be doomed once tech stumbled will need to confront the evidence that the market rally is standing on its own, without the help of big tech 💪

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Earnings Are The Key 💵

The optimistic narrative is that corporate earnings can increase and that the Federal Reserve won’t damage the economy, which continues to grow amid expectations for interest rate cuts this year.

The mood persists despite a trickle of higher-than-expected inflation data over the past three months that has the Fed holding off on its first rate cut.

And yet, the market so far has forgiven any news that could have pushed stocks lower ⚖️

Based on current consensus analyst forecasts for S&P 500 quarterly earnings, profits will rise this year and accelerate throughout the year.

That’s partly because many companies have issued strong outlooks for the second half of the year as demand just hasn’t been hit hard enough from higher rates.

After 2023 saw S&P 500 aggregate earnings per share grow not even 2%, analysts expect S&P 500 earnings per share to rise 11%, to $242, this year 📈

That narrative relies heavily on the second half of the year.

Analysts see the S&P’s first half earnings per share at $114.

If companies sustained exactly that pace, full-year earnings would be on pace to hit just $228 a share, falling short of the current 2024 projection ❌

Instead, analysts are forecasting second half earnings of $128 a share for the S&P 500, growth of 12% from the first half.

That represents the fourth largest second half rebound in the past 20 years.

The average jump is 0.3%.

That’s why, for stock prices, the second half of the year is when the rubber hits the road.

If earnings fail to accelerate, that could easily be the negative news that catalyzes a market drop 📉

Inner Circle Macro Update 🔍

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