by Bryan Perry

February 27, 2024

Wall Street loves to publish price targets for markets, and now that the S&P has traded above 5,100 and closed at a record high 5,088 last Friday, it’s a good time to take stock of the latest move higher during the first two months of 2024. As of this writing, UBS has the highest projection among top global brokerages, raising their target to 5,400, representing a further modest advance of around 6% from current levels.

Given that there are still 10 months left in a Presidential election year, it seems Wall Street might be about as wrong about the strength of this bull market as it was about calling for a recession. First, let’s consider the supposedly “high” P/E ratio. FactSet stated on February 16, “The forward 12-month P/E ratio for the S&P 500 is 20.4. This P/E ratio is above the 5-year average (19.0) and above the 10-year average (17.7).”

Stripping out the Magnificent 7 and FAANG stocks, however, the S&P is trading at a 15x-multiple, so the rest of the market is far from being overvalued, based on the forward 12-month EPS for the S&P of $250.

Because Wall Street embraced a recession (of some degree) as a “sure thing,” money has been piling up on the sideline – current estimates stand at $6.1 trillion. Granted, cash sitting idle earning 5.0% to 5.5% in money markets, CDs, short-term Treasuries and agencies is tempting for its guarantee of principle, but seeing what is shaping up to be one of the great stock market opportunities of all time unfold is pretty tempting, too. Longer term, the S&P is up by only 5.9% from January 4, 2022, before the AI craze began.

To put some global context into this rally, consider the following: The S&P Global U.S. Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers from a panel of around 800 manufacturers. The composite Global PMI increased to 51.80 in January from 51 in December of 2023, and the preliminary reading for February is 51.50. (Above 50 connotes expansion).

This PMI reading is widely recognized as a leading indicator of business conditions. It includes sub-indices related to business output, new orders, employment, costs, selling prices, exports, purchasing activity, supplier performance, and backlog of orders. It’s a good gauge of changing worldwide business conditions that has been rising since October. It’s a bullish trend (source: trading

The current amount of margin debt of around $771 billion in the stock market is nowhere near the high of Q4 2021, when margin debt topped $935 billion, so the three major averages are hitting all-time highs without excessive use of leverage. To be sure, the cost of borrowing money to buy stocks is expensive. Margin rates in the 6-8% range at most big brokers cause traders to limit margin use to short-term trades.

The bond market has retreated, with yields backing up across the curve, and yet equities in all 11 S&P market sectors are trading higher for the past two weeks, recouping the big one-day losses incurred on February 13 (due to the hot CPI number). For those critics who claim the market is being led by only a handful of mega-tech stocks, they need to look to some strong participation in the industrial sector, non-bank fintech and big cap healthcare stocks that demonstrate that the market is indeed broadening out.

Indeed, there is also the positive impact that M&A has on investor sentiment, with some sizeable deals crossing the tape. Capital One is buying Discover for $35 billion. Diamondback Energy is acquiring Endeavor Energy, the largest private operator in the Permian basin, for $26 billion. Owens Corning plans to buy Masonite for $3.9 billion and Chord Energy plans to merge with Canada’s Enerplus, valued at $11 billion. Fresh deal flows for M&A are almost always bullish for markets, as it makes us ask: Who’s next?

Comparing historical returns can be helpful, but it can also be a hinderance when deciding whether or not to put money to work in the stock market following a move to new highs. Investors caught up in looking in the rear-view mirror might miss out on further gains when there are transformational catalysts at work, namely AI, record cash on the sidelines, and a Fed positioned to lower rates later this year. Some years, the market doesn’t play by historical rules, with 2024 looking like it could be another very profitable year.

With earnings season mostly complete, FactSet’s latest report says that for Q4 2023 (with 79% of S&P 500 companies reporting results), 75% have reported a positive EPS surprise and 65% have reported a positive revenue surprise. First-quarter guidance has been mixed, with many of the biggest and best companies within each of the sectors pointing to a solid first quarter of top- and bottom-line growth.

It would be no surprise to see some consolidation during the next 2-4 weeks to digest the data covering inflation, employment, retail sales, consumer sentiment, housing, factory production and other data.

This period also gives investors an opportunity to see how the bond market reacts to further hefty Treasury auctions, of which the $16 billion 20-year Treasury auction held last week was not well received, where dealers had to step in and take in 21.2% of the sale. This is the stock market’s boogey-man, the $34 trillion in U.S. federal debt. For all the positive indicators pointing to a higher market, this issue carries the type of risk that can derail a good equity market. That’s something to think about and definitely something to take very seriously, considering the size of the debt and who’s going to buy it all.

Navellier & Associates does not own Capital One, Discover, Diamondback Energy, Endeavor Energy, Owens Corning , Masonite, Chord Energy, or Enerplus, in managed accounts. Bryan Perry does not own Capital One, Discover, Diamondback Energy, Endeavor Energy, Owens Corning, Masonite, Chord Energy, or Enerplus, personally.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Inside NVidia’s Stunning Report, and its Impact

Income Mail by Bryan Perry
What Could Stop the Market’s Mojo?

Growth Mail by Gary Alexander
Are We in Market Bubble Territory Yet?

Global Mail by Ivan Martchev
The Broad Market is Not Extended at All

Sector Spotlight by Jason Bodner
Is the Market a Short-Term Casino, or a Long-Term Sure Thing?

View Full Archive
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About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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