4 Predictions for US Stocks in H2 2024

Looking
ahead
to
the
remainder
of
the
year,
analysts
say
equities
can
continue
to
climb,
but
they
warn
that
the
risks
of
elevated
valuations
and
a
rally
concentrated
in
just
a
handful
of
names
are
beginning
to
compound.
Meanwhile,
economists
say
that
while
they
expect
economic
growth
to
cool
in
the
coming
months,
they
don’t
anticipate
a
problematic
slowdown
that
leads
to
a
recession.
And
while
traders
began
the
year
anticipating
six
or
even
seven
interest
rate
cuts
from
the
Federal
Reserve
in
2024,
they
now
expect
just
one
or
two.

Here’s
what
the
market
and
economic
outlook
means
for
investors.

US
Market
Performance:
H1
2024

Morningstar
Direct

The
Bull
Market
for
Stocks
Can
Power
Ahead…

Analysts
say
the
forces
that
propelled
stocks
higher
in
the
first
half
will
remain
intact
in
the
second.
“The
modest
earnings
acceleration
is
continuing,
the
economy
and
inflation
appear
to
be
moderating
enough
for
the
Fed
to
lower
its
benchmark
rate,
and
the
market
tends
to
enjoy
a
year-end
rally
during
presidential
election
years,”
Ed
Clissold,
chief
US
strategist
at
Ned
Davis
Research,
wrote
at
the
end
of
June.

David
Lefkowitz,
head
of
US
equities
at
UBS
Global
Wealth
Management,
points
to
growing
investment
in
AI
technology,
solid
profit
growth,
and
a
pivot
to
rate
cuts
as
inflation
continues
to
fall.
“Overall,
we
believe
the
environment
remains
supportive
for
US
equities
and
investors
should
have
a
full
allocation
to
the
asset
class,”
he
wrote
in
a
recent
client
note.

The
S&P
500
Index
started
the
quarter
at
5,470,
and
Clissold’s
year-end
target
is
5,725 –
a
gain
of
4.6%.
Goldman
Sachs
analysts
target
a
year-end
level
of
5,600
(a
2.4%
boost),
while
UBS
Global
Wealth
Management
analysts
are
slightly
less
optimistic
and
target
5,500
(a
0.5%
increase).

…But
Risks
Are
Mounting

That
rosy
outlook
is
not
without
risks,
however.
With
valuations
climbing
and
a
handful
of
mega-cap
tech
stocks
driving
the
market’s
returns,
Clissold
warns
that
the
market
is
now
“vulnerable
to
bigger
drawdowns.”

James
Ragan,
director
of
wealth
management
research
at
DA
Davidson,
adds:
“a
more
sustainable
market
rally
will
require
broader
participation.
Unfortunately,
we
haven’t
really
seen
that.
It’s
gone
the
other
way
over
the
last
couple
of
months.”

Combine
that
with
concern
over
slowing
earnings
and
weakness
in
the
consumer
sector,
and
you
have
a
recipe
for
greater
portfolio
risks.
Ragan
is
more
bearish
than
many,
with
a
year-end
estimate
for
the
S&P
500
of
5,000 –
8.6%
below
where
the
index
began
the
second
quarter.

Time
to
Diversify

Against
this
backdrop,
some
strategists
recommend
that
investors
look
beyond
the
giants
that
propelled
the
market
higher
this
year.
Rebalancing
away
from
overweight
positions
in
mega-cap
tech
may
feel
“painful
in
the
short
run,”
Ragan
says,
especially
if
those
stocks
continue
to
run,
but
“it’s
absolutely
the
prudent
decision
for
longer-term
investors.
It’s
a
way
to
reduce
risk
and
still
participate
in
the
gains.”

Morningstar
chief
US
market
strategist Dave
Sekera points
to
undervalued
areas,
like
small-cap
and
value
stocks.
“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,”
he
advised
in
his third-quarter
outlook.

Growth
Slowing,
but
Recession
Unlikely

Economic
growth
slowed
over
the
first
half
of
the
year,
with
US
GDP
growth
falling
to
1.4%
in
the
first
quarter
from
3.4%
in
the
fourth
quarter
of
2023
as
the
effects
of
the
Fed’s
rate
hiking
cycle
continued
to
make
their
way
through
the
economy.
Consumer
spending
slowed,
and
the
lingering
economic
boost
from
the
aftermath
of
the
pandemic
faded.

Analysts
are
looking
ahead
to
further
cooling
over
the
year.
“We’re
still
expecting
the
sequential
growth
rates
to
drop
sharply
over
the
rest
of
2024
and
remain
low
through
early
2025,”
Morningstar
chief
US
economist Preston
Caldwell wrote
in
his
July
economic
outlook.
He’s
forecasting
2.4%
GDP
growth
for
2024
and
1.4%
for
2025.

For
now,
analysts
say
this
slowdown
is
more
indicative
of
a
soft
landing
(or
“no
landing”)
than
a
recession.
In
their
mid-year
outlook,
analysts
from
Bank
of
America
pointed
out
that
the
softening
gauges
of
economic
health –
rising
credit
card
delinquencies,
slowing
manufacturing
activity
and
retail
sales,
and
a
weakening
labour
market –
are
indicative
of
a
return
to
normal
from
the
unsustainably
high
levels
of
the
pandemic,
not
a
problematic
decline.
“We
see
healthy,
not
recessionary,
macro
trends,”
they
wrote
in
June.

Analysts
think
that
could
be
good
news
for
markets,
but
it
depends
on
whether
spending
holds
up.
“The
interpretation
of
consumers
makes
the
difference
for
the
more
bullish
forecasts
on
the
street,”
Ragan
says.
An
environment
in
which
the
consumer
is
still
strong
and
spending
means
“we’ll
probably
see
pretty
good
corporate
performance.”
On
the
other
hand,
a
weaker-than-expected
consumer
would
be
bad
news.

Rate
Cuts
Coming
in
September
or
December

In
general,
analysts
expect
one
or
two
interest
rate
cuts
from
the
Fed,
beginning
in
September
or
December,
thanks
to
recent
progress
on
inflation,
a
resilient
job
market,
and
a
gradually
slowing
economy.
Investors
agree.
As
of
July
3,
bond
futures
markets
were
pricing
in
a
roughly
60%
chance
that
the
first
rate
cut
will
come
at
the
Fed’s
September
meeting,
according
to
the
CME
FedWatch
Tool.
Traders
see
a
roughly
32%
chance
that
it
will
come
in
December.

Federal
Funds
Rate
Target
Expectations
for
December
18
2024
Meeting

CMS
FedWatch
Tool.
Data:
July
2
2024

Caldwell
is
anticipating
a
deep
rate-cutting
cycle
beginning
in
September.
“We
expect
inflation
to
dip
lower
in
2025
and
2026
than
the
market
expects,
and
unemployment
to
rise
a
bit
more,
both
of
which
will
call
for
more
aggressive
rate
cuts,”
he
wrote.

Of
course,
the
path
of
interest
rates
and
monetary
policy
is
tied
closely
to
the
economy’s
performance.
The
Fed
has
repeatedly
indicated
that
it
will
remain
“data
dependent,”
meaning
that
it
is
willing
to
keep
rates
high
for
longer
if
inflation
proves
sticky
and
willing
to
cut
earlier
than
expected
in
the
event
of
a
major
slowdown
or
shock
in
the
economy.

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