Our market outlook is generally optimistic. In 2023, many market experts viewed a recession as virtually unavoidable. At this point, that prediction appears to have been largely incorrect.
Instead, it appears that we may have entered a secular bull market – like those from 1946 to 1966 and 1982 to 2000. These are normally characterized by the outperformance of large-cap stocks over small caps, U.S. markets over international ones, and equities over commodities. This doesn’t exclude the possibility of cyclical downturns – those are inevitable. But it certainly provides reasons for optimism.
Recently, the S&P 500 exceeded earnings expectations in the second quarter (Q2), supported by broad-based gains, including significant growth among the 493 stocks outside the “Magnificent Seven.” If past trends are any guide, analysts may be underestimating the recovery happening outside the Mega cap tech sector, particularly if Federal Reserve rate cuts spur further growth.
Positive forward earnings estimates, reflecting encouraging guidance from many companies, also contributed to the market’s strong response to Q2 earnings. Energy was the only sector that fell short. Analysts have generally increased their earnings outlook for the coming year, providing additional support for the market’s July rally.
The outlook appears favorable, with opportunities in sectors like industrials and information technology, and we expect continued growth in the near term as the Federal Reserve becomes more accommodating. While geopolitical risks and unexpected events are constant concerns, we believe they would likely result in short term disruptions. Overall, we see reasons to stay positive.
Mike Holden
Portfolio Manager | Q Wealth Partners
