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The first half of the year has been a smash hit for the stock market, with all large-cap indexes repeatedly hitting new all-time highs. But investors are now asking themselves the age-old question: How long can the good times keep rolling?
While nobody has a crystal ball, top Wall Street analysts have some ideas about how things will play out across the markets over the next six months.
The main takeaway? Stay invested.
“The first six months of the year may have felt like a roller coaster to some investors,” explained Chief Investment Officer Americas at UBS Solita Marcelli in a recent note about his second-half outlook. “But market performance has justified staying invested and underscored the merits of diversification.”
Morgan Stanley Strategist Serena Tang seconded that opinion. “Moderate growth, disinflation, rate cuts, and supportive flows and fundamentals make for a good set-up for risk assets in 2H24,” Tang wrote in a global mid-year outlook.
And if history is any indication, stocks will keep going up through the end of the year. “Since 1990, there have been 10 occasions where the S&P 500 index has achieved a return greater than 10% at midyear. In each instance, the index produced a positive return in the second half of the year, averaging a 10.8% return over the next six months and 14.2% over the next 12 months,” wrote Chief Investment Officer for Comerica Wealth Management John Lynch in a note yesterday.
Even though we here at Brew Markets may seem omniscient and all-knowing, we still defer to the experts for investment ideas. Here is what they say you should consider adding to your portfolio in the second half of 2024:
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Value: Morningstar analyst Dsavid Sekera warned that AI stocks could be heading toward overvalued territory, and highlighted the potential in the real estate, energy, and basic materials sectors as value alternatives. “While a rising tide can lift overvalued AI stocks even further into overvalued territory in the short term, in the future we think long-term investors will be better off paring down positions in growth and core stocks, which are becoming overextended, and reinvesting those proceeds into value stocks, which trade at an attractive margin of safety.”
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International opportunities: UBS’s Marcelli pointed to global equities as a way for investors to diversify amid geopolitical instability. “We continue to see a supportive backdrop for global equities, and expect discount factors to decline as inflation normalizes and central banks embark on an easing cycle. Aside from AI beneficiaries, we see quality growth opportunities in Europe’s Magnificent 7, Asia’s benchmark heavyweights, and companies that can reinvest their earnings at returns consistently above their weighted-average cost of capital.”
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Small caps: “At current valuations, small caps have certainly discounted a significant amount of potential bad news and therefore represent an attractive opportunity,” wrote Glenmede Investment Management Portfolio Manager Jordan Irving. He pointed specifically to cyclical sectors, industrials, and energy as his picks within small caps, and recommends companies that “are generating significant operating cash flows and are using that cash to retire debt, return cash to shareholders through dividends/share buybacks, and pursue strategic M&A.”
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Cash: “We think credit markets will continue to face challenges in delivering returns exceeding yields on the 3 month t-bill, until the Fed starts cutting rates or spreads widen or both,” wrote Bank of America’s credit strategist Oleg Melentyev in a recent forward-looking note. “We advocate an elevated cash balance, just as we have done most of this year.”
What else should you keep an eye on in the second half of 2024?
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Crypto: Spot ethereum ETFs are likely to hit the market this year. “Everyone wants to know how much spot ether exchange-traded products will attract in net flows. My answer: $15 billion in their first 18 months,” wrote Matt Hougan, the chief investment officer of Bitwise, in a note last week.
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Commodities: “We also see gold as an attractive geopolitical hedge and portfolio diversifier, and rate the metal as most preferred,” wrote Marcelli. A team of Morgan Stanley analysts led by Tang pointed to copper and oil as investments with room to run. “Toward year-end, good demand and a tightening balance drive copper, while tailwinds from falling rates and strong physical demand keep gold supported, and summer tightness lifts Brent prices.”
As the year has progressed and the market has continued to run higher, numerous Wall Street firms have raised their end-of-year S&P 500 price targets this summer. The leader of the bulls is Evercore’s Julian Emanuel, who raised his year-end prediction to 6,000 in June. Goldman Sachs analyst David Kostin also upped his target from 5,200 to 5,600 last month.
Even Morgan Stanley’s Mike Wilson, a notorious bear, raised his target to 5,400 in late May, a significant jump from his previous 4,500 forecast. Now, JPMorgan’s Dubravko Lakos-Bujas has the lowest price target of 4,200, which he set way back in November.
Wherever the market winds up, the rest of 2024 is sure to be a wild ride—but Brew Markets will be here to help you understand every twist and turn along the way.—LB
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