The S&P 500 is rallying 15% toward a record high in the first half of 2024. Jeffrey Buchbinder, chief equity strategist at LPL Financial, doesn’t think the rally is sustainable.
Stocks will likely continue to rise through the current earnings season, but Buchbinder advises investors to prepare for a pullback later this year. Here he explains why he’s skeptical and offers four investment strategies for the current environment.
A setback is happening
As companies begin reporting second-quarter earnings this month, Wall Street analysts’ forecasts paint a brighter picture for the stock market. Analysts expect S&P 500 earnings per share to increase 9% from the same period last year, which would be the best growth rate in the past 10 quarters.
However, optimistic earnings prospects do not necessarily translate into sustained market performance.
Buchbinder points to a recent decline in the Bloomberg/Citi Economic Surprise Index (the sum of the difference between official economic forecasts and consensus estimates) as a reason a recession could be looming. Additionally, the ISM Manufacturing Index, a measure of manufacturing activity, came in below expectations in June, signaling a possible economic slowdown.
Given his less-than-favorable forecast for stock price trends, Buchbinder recommends waiting until the market finally corrects and then buying on the dips.
That could be another six weeks because of earnings season. Historically, stocks perform better in the first half of the quarter when companies report earnings. On average, since 2020, the S&P 500 has risen about 4% in the first half of the quarter and performed averagely in the second half.
LPL Financial
Because of this, Buchbinder predicts the stock market will experience a correction in August as companies wrap up their earnings reports. Investors should take this phenomenon into consideration and realize that the performance of the current bull market over the coming weeks will not be entirely driven by stock fundamentals.
Where to invest now
In the current economic climate, Buchbinder offers the following recommendations: Overall, LPL has a neutral stance on the stock, citing AI’s strong tailwinds and earnings potential.
Buchbinder is Fixed income In the current environment, fixed income is a more attractive asset class than equities, with a better balance of risk and reward. In particular, the company notes that there is an opportunity to shift allocations from cash to longer-term interest-earning securities, as impending interest rate cuts could reduce the current high returns on cash. LPL maintains an overweight rating on fixed income.
As for investors’ existing share allocations, Buchbinder said: Domestic stockswith emphasis Growth stockBuchbinder also said: Japan As an internationally attractive market.
ETFs such as the Vanguard Growth ETF (VUG), iShares Morningstar Growth ETF (ILCG), and Invesco QQQ Trust (QQQ) all offer exposure to growth stocks. Investors interested in gaining exposure to Japanese stocks can do so through ETFs such as the iShares MSCI Japan ETF (EWJV) and the Franklin FTSE Japan ETF (FLJP).
