Stock Market News and Investment Insights for 2024

Between continued volatility in equity markets, an impending election, and ongoing concerns around interest rates, today’s financial world is more uncertain than ever. Most investors thought 2023 would end in the red, yet it defied expectations. The early months of 2024 kicked off with a bang, but what should investors expect as we go into the second half of the year? Let’s dive in. 

U.S. Equities — How Did We Get Here & Where Are We Headed?

In the last two months of 2023, the S&P 500 had some of the best results we’ve seen in decades. But 2024 took us to new heights with 31 new all-time highs in equity markets and year-to-date returns exceeding 15% as of June 30th! 

Many clients ask us, “What’s been working, and where should I invest?” So far this year, we’ve seen growth stocks significantly outperform their counterparts. Large-cap growth stocks are up 32% over the last 12 months, largely in part due to a group of stocks called “The Enormous Eight.” While this aligns with what we’ve seen in 10-year annualized returns over the last decade, we’ve also seen strong performance from small and mid-cap stocks as well, so it’s important to remain diversified across the various asset classes. 

Source: Compustat, FactSet, Federal Reserve, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management.
Dividend yield is calculated as consensus estimates of dividends for the next 12 months, divided by most recent price, as provided by Compustat. Forward price-to-earnings ratio is a bottom-up calculation based on IBES estimates and FactSet estimates since January 2022. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of June 30, 2024.

Are U.S. Equities Overpriced?

Many investors express concerns that valuations are expensive, and they often ask us if we’re in a bubble or expecting a recession. By the end of June 2024, the S&P 500 had a forward price-to-earnings ratio of 21.01x. Something we’re watching closely is the quarterly earnings growth to see if this growth is sustained or if the market is overstretched. Going forward, we hope to see earnings growth on the S&P 500 that justifies the high multiples. If we don’t see that growth, we’ll start being concerned. Today’s price-to-earnings multiple is about 1.5 standard deviations above the 20-year average of 16.62x, so we consider valuations more expensive than they’ve been in recent years.

Source: FactSet, FRB, Refinitiv Datastream, Robert Shiller, Standard & Poor’s, Thomson Reuters, J.P. Morgan Asset Management.

Price-to-earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since March 1994 and by FactSet since January 2022. Average P/E and standard deviations are calculated using 30 years of history. Shiller’s P/E uses trailing 10-years of inflation-adjusted earnings as reported by companies. Dividend yield is calculated as the next 12-months consensus dividend divided by most recent price. Price-to-book ratio is the price divided by book value per share. Price-to-cash flow is price divided by NTM cash flow. EY minus Baa yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minus the Moody’s Baa seasoned corporate bond yield. Std. dev. over-/under-valued is calculated using the average and standard deviation over 30 years for each measure. *Averages and standard deviations for dividend yield and P/CF are since November 1995 due to data availability. Guide to the Markets – U.S. Data are as of June 30, 2024.

Performance Across Equity Classes

Coming into 2024, investors didn’t know what to expect. Few investors and analysts had high hopes for 2023’s market performance, and we saw a massive run at year end. So, what have we seen so far?  

When we look at the market here in July, it’s running and has been doing so since late 2023, largely in part due to the performance of the Magnificent 7. 

The Magnificent Seven

In 2023, the seven technology stocks that led the way for the S&P 500’s incredible performance were dubbed the “Magnificent Seven.” These, alongside three other large-cap growth stocks, play a large part in the growth we’ve seen in the S&P 500 this year. The market cap of the top 10 stocks in the S&P 500 make up 37% of the S&P 500 and comprise almost 27% of the earnings as of June 30, 2024. Many of our clients ask us, “how long can this last? Are we in a bubble?”  

Let’s look at history as a guide – specifically, the late 90s tech bubble. During this time, price-to-earnings multiples soared into the high 30s and low 40s, while today, the top 10 stocks' price-to-earnings multiples are lingering around 29.3x (as of June 30, 2024). Typically, when valuations are this high, we’d want to see earnings growth to justify it. Apart from 2022, these top 10 stocks have seen tremendous earnings growth following the COVID economic cycle from 2021 forward. However, this level of earnings growth and the price of the stock isn’t sustainable long-term. We expect the Magnificent 7 will begin seeing slower earnings growth in the latter half of 2024 and beyond, so other companies in the S&P 500 will need to start growing their earnings to keep valuations high.  

As of June 30, 2024, the S&P 500 is up over 15% year-to-date. But the so-called Magnificent 7, except for Tesla— Microsoft, Nvidia, Apple, Amazon, Meta, and Google (Alphabet)— have had incredible growth over the last 12 months, especially compared to the major indices.

As of July 17th, 2024, the Enormous Eight’s performance over the last 12 months is as follows:  

• NVIDIA: Up 178% 
• Facebook: Up 58% 
• Amazon: Up 43% 
• Microsoft: Up 31% 
• Alphabet: Up 46% 
• Apple: Up 23% 
• Tesla: Down 8% 

So, why not just invest in these seven companies? If we look back over the last 40 years, we’ll see that different companies have come and gone in the top spots dominating the S&P 500. Just because they are on top today, doesn’t mean they will stay there. Consider this – If we look at Tesla’s performance over the last 12 months, they were at their all-time highs in July of 2023, fell 43% from that high by April 2024, and are still down almost 9% as of July 2024. 

While it can be tempting to go all in on these top performers, past performance isn’t indicative of future results. We don’t expect to see continued high growth in the long term, and there is also the risk that some of these firms may be overvalued.  

As we continue, we expect to see significant earnings growth to uphold the high prices for these stocks. Otherwise, if earnings and market expectations are misaligned, we could see downward pressure on the stocks instead.  

Over the long term, we've seen large-cap growth and blend stocks outperform, with 10-year annualized returns of 16.3% and 12.9%, respectively. Historically, over the last 60-80 years, small and mid-cap stocks have provided excess returns over large caps. However, in the last 10 years, large-cap stocks have outperformed due to the rising success of technology companies. While past performance isn't indicative of future results, these historical results can provide an interesting lens for considering various investment strategies.  

How Should My Investments Shift for the Upcoming Presidential Election? 

During election years, we often have clients asking if it’s time to get out of the market or change investments based on who’s in office. However, we’ve had good and bad markets under Republican and Democrat presidents, and we’ve had volatility during election years and the years that followed. S&P Global ran a study that looked at the S&P 500 from 1928-2021 and found that the average return during US election years was 11.57% and for the years after elections was 10.67%. What does this tell us? We shouldn’t be changing our investment strategy or pulling out of the market because of an election. It’s important to keep to our long-term strategy instead of making shortsighted choices in the face of uncertainty. 

Asset Classes & International Markets

In 2023, large cap stocks led the way for market growth with over 26% returns for the year, followed closely by developed market equities (18.9% returns) and small cap stocks (16.9% returns). These leaders have shifted slightly in the first half of 2024 with large caps yielding 15.3% returns year-to-date, followed by emerging market equities (7.7%), and developed market equities at 5.7%, as of June 30th, 2024. 

While it's important to avoid chasing what's run recently, it's also essential to understand what causes shifts among the various market sectors and asset classes. 

Let’s look at what’s happening in international markets. When we look at annualized returns over the last 15 years, internationals have a few things working in their favor – ongoing earnings growth and positive dividends. However, compared to U.S. equities, what’s dragging down international returns is declining multiples from people not paying as much per dollar's worth of earnings and the value of the country’s currency compared to the dollar. 

Source: Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management.

Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Bloomberg Global HY Index, Fixed Income: Bloomberg US Aggregate, REITs: NAREIT Equity REIT Index, Cash: Bloomberg 1-3m Treasury. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Bloomberg US Aggregate, 5% in the Bloomberg 1-3m Treasury, 5% in the Bloomberg Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. Annualized (Ann.) return and volatility (Vol.) represents period from 12/31/2009 to 12/31/2023. Please see disclosure page at end for index definitions. All data represents total return for stated period. The “Asset Allocation” portfolio is for illustrative purposes only. Past performance is not indicative of future returns. 
Guide to the Markets – U.S. Data are as of June 30, 2024.

From a valuation perspective, as of June 30th, 2024, international equities' price-to-earnings ratio was around 13.5x while the U.S. remains at 21x – international equities are discounted by 36% comparatively! We hear that many people believe that international stocks consistently underperform compared to domestic equities; however, there are periods when U.S. equities underperform for years compared to international equities and vice versa. Take, for example, the period from 2003-2008: the S&P 500’s total return was about 49%, but the total return for the MSCI ACWI index for internationals was over 92%! What's essential to keep in mind is that what's worked recently may not work in the future.

Source: FactSet, MSCI, Standard & Poor's, J.P. Morgan Asset Management. 
Guide to the Markets – U.S. Data are as of June 30, 2024.

Inflation Concerns and What It Means for Investors

Inflation in the U.S.

In June 2022, we reached 9% for headline CPI (levels we haven’t seen since the 1980s), before slowly declining in later months of the year and into 2023. As of May 2024, headline CPI dipped to 3.3%. However, ongoing high shelter and core goods costs are keeping core CPI higher than the Fed’s expected 2%. With the Fed’s hawkish stance on interest rates, this is an area we’re keeping close watch over. 

Interest Rates Amidst Rising Inflation

Following the near-zero interest rates during 2020, the Fed completed its first federal fund rate increase in early 2022. Since then, we saw the federal fund rate spike from 0%-0.25% in March of 2020 to over 5% in May 2023. This was the fastest-ever spike in the federal funds rates! The goal of these rate hikes is to fight persistently high inflation, but these rates impact everything from mortgage costs to savings accounts. 

A question we’ve gotten from many of our clients lately is, “the Fed hasn’t raised rates since July and inflation is down from last year, so shouldn’t rates come down soon?”  

With inflation staying above the Fed’s target of 2%, we don’t foresee rates coming down substantially anytime soon. And, there’s a real chance we don’t get any before the new year. Market expectations also believe the Federal Funds Rate will drop to about 3.73% by the end of 2025. Upon the Fed’s decision to stop raising rates, whenever it may be, we’re optimistic that we’ll see the economy and stock market take off as we shift away from a “tightening” market.