The S&P 500 (^GSPC) closed at 5,554 in Wednesday’s trading session after rebounding from its morning lows. B. Riley Wealth chief market strategist Art Hogan joins Market Domination Overtime to discuss the index’s outlook and how investors can best position their portfolios ahead of the Federal Reserve’s interest rate cuts.
Hogan’s year-end target for the S&P 500 is 5,700. He believes this is “an attainable goal” given the earnings beat ratio during the first two quarters of 2024.
He adds, “I clearly think the path of least resistance for this market continues to be higher. If you look at earnings estimates for the next two quarters, they’re low double digits, and we typically are conservative with those, so we’ll likely do better than that. GDP is tracking at 2.5%, according to the Atlanta Fed, and we had a 3% GDP growth rate in the last quarter. So while the economy is slowing a bit, we’re still seeing an economy that’s growing above trend and driving earnings growth.”
While the technology sector has largely contributed to the growth of the index in the first half of 2024, Hogan believes there will be more participation from players outside of the “Magnificent Seven.” He expects that these companies will grow earnings at a faster pace than they has over the last 18 months, and notes that tech will continue to be “a core investment.”
As the Federal Reserve begins cutting interest rates, Hogan believes that small caps will likely benefit. “They’re more dependent on interest rates as they’re more dependent on debt. So as that comes down, that’s a headwind that’s turning into a tailwind right in front of us,” he explains. Coupled with GDP growth, small caps are likely to receive a boost, Hogan adds.
For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.
This post was written by Melanie Riehl
Art with the S and P 500.
You at, uh, 5554 your, uh, your year end target art is what?
5700.
And that’s based on a, uh, assumption that we’re going to see, um, about $260 in earnings consensus about 254 right now.
Um, and I think that, you know, with the, with the, the, the beat ratio that we’ve seen for the first two quarters and the cadence of earnings for the second two quarters of this year, probably an attainable goal, just put a trailing multiple on that.
Um, and you get to 5700 or you could take a, you know, a 12 month, the next 12 month, uh, multiple on that and, and, uh, and, and get to the same place.
But I think it’s, you know, obviously it’s been a bumpy road getting there and, and, and clearly that looks a lot braver in January when that came out than it does today because it’s not significant upside.
But I clearly think the path of least resistance for this market continues to be higher.
If you look at earnings estimates for the next two quarters, they are low double digits and, and, and we typically are conservative with those, so we’ll likely do better than that.
GDP is tracking at 2.5% according to the, the Atlanta Fed and we had a 3% GDP growth rate in the last quarter.
So, while the economy is slowing a bit, we’re still seeing an economy that’s growing above trend, driving earnings growth.
So that, you know, that’s kind of where we get to that year end target and what the drivers are.
You mean, you haven’t changed the target 15 times since the start of the year right now.
No, I just way too brave at the beginning and I think people thought I, you know, were looking at me like I was, I had antlers or something, but, you know, it’s a nice one.
It’s nice when it turns out.
Although knock on wood, we still got a few months to go.
But art, um, do you think that, you know, to go back to technology, is that the best way to play it right now or would you be looking to add elsewhere?
It’s such a great question.
When you look at the cadence of earnings going forward, the biggest part of that earnings growth is actually coming away from technology.
So for the first time in this cycle, we’re actually gonna see the participation of the other 493 stocks in the S and P 500 actually grow their earnings at a faster pace than we’ve seen for the last uh, year and a half.
So I’m, I’m excited about tech and always will be, it’s always gonna be a core investment.
But we’d also like to broaden that out as the market broadens out and look at some of the sectors that have underperformed because I clearly think the earnings potential for, you know, the other, the the the the sectors other than tech and communication services is pretty exciting in the back half of this year in the first half of next.
How about small caps are, do I want to own those?
You do you know interest rates are going down there?
The two things small caps need is uh interest rate environment that’s coming down.
They’re more dependent on interest rates as they’re, they’re more dependent on debt.
So as that comes down, that’s a, that’s, that’s a headwind that’s turning into a tail wind right in front of us.
And I think that continues well into next year.
The other piece is you need to sustain economic growth for the small caps and, and, and clearly, you know, running at a, you know, no north of mean 2.5% to 3% GDP growth rate this year is going to be another positive.
The only reason they had to perform last year uh was clearly interest rates weren’t coming down.
And while we did have robust economic growth, but we’re switching that around and we’re gonna turn two headwinds at the tailwinds for the small caps.
And this is the environment they tend to do.
Well.
The other piece of the puzzle Josh is that they, they clearly the, the mean reversion they have is, is as wide as we’ve seen in between small and large going all the way back to 2000.
So that tends to uh rectify itself, especially when you get a couple of catalysts like falling interest rates and steady economic growth and art finally, um to close it out, I, I wanna broaden it back out and go back to that 5700 because a political question about that does 5700 stand no matter who wins the presidential election.
Yeah, I, you know, we love to talk about the president elect and then try to make comparisons to what that might mean for markets.
But at the end of the day, history will teach us that the best market we could have would be, you know, agnostic of who’s in the White House.
Uh a divided Congress, right?
And, and that tends to be how markets do their best.
If you go back, you know, since 1950 it’s always been, you know, whether it’s a Democrat or Republican in the White House, as long as they don’t control Congress markets tend to do great and, and, and regardless of what polling you’re looking at, it doesn’t look like either side is going to run the table here.
All right, good to see you.
Thanks a lot for joining us.
Thank you.
