What the current bull market means for investors?
Brendan Greenwood, CFP, CIM, B.Comm | July 25, 2024
It’s a bull market!! Investors that owned the S&P 500 or Nasdaq have benefited from their exposure to the magnificent seven, Alphabet, Meta, Amazon, Microsoft, Nvidia, Apple and Tesla. These companies collectively reported a 52% increase in profits in the first quarter of 2024 and analysts expect them to report a 28% jump in earnings in the second quarter, the Wall Street journal reported.
The majority of the S&P 500’s return in the first half to the year can be attributed to gains of the magnificent seven. The CAPE ratio of the S&P 500 (stock market price divided by average inflation-adjusted earnings from the previous 10 years) is nearly 36 approaching the number it hit in 2021, before the S&P 500 rapidly declined the following year by 25%. That decline was influenced by a dramatic rise in interest rates and frustrated supply chains.
The S&P 500 over the past 37 weeks has had its best winning streak in more then three decades sights the Economist. This begs the question, what are the risks today?
The rise of right-wing populism within major economies is leading to more protectionist policies and greater geopolitical instability. Less trade and more barriers put up between countries could re-ignite inflation. These forces may leave central banks no choice but to raise interest rates further. The Wall Street Journal’s survey of US institutions found that expectations of a Fed rate cut this year have been pared back to only one 25 basis point rate cut (0.25%). Beyond 2025, whether interest rates tick down or up is anyone’s guess.
Balance will be one of the key elements in helping your investment portfolio generate return through challenging years, to improve overall compounding. In aggregate the Magnificent Seven are expected to report year over year earnings growth of 56.4% for the second quarter of 2024 according to FactSet. At these high growth rates, it’s hard to argue against owning these companies, but as euphoria sets in and valuation multiples continue to rise it would be wise to own some alternative investments in your portfolio that can protect against economic shocks. Remember, a 50% loss in your portfolio means you need 100% return to make your money back.
Some funds to consider in varying your balanced approach may include market neutral, long short or options funds, precious metals, North American and Global bonds. An advisor can save you time and help take away the guess work in terms of the best managed and most appropriate options for you.
Brendan Greenwood is an Investment Advisor and Financial Planner with Worldsource Securities Inc. focused on improving the lives of his clients and their families through holistic planning. He specializes in tax advantaged personal pension strategies and leveraging technology to provide progressive institutional style investment solutions for professionals, business owners, retirees and their families.
For other articles written by Brendan Greenwood visit his Blog | GreenwoodWealth
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*Insurance solutions and related services are mentioned in this newsletter as part of comprehensive financial planning services only and are not available through Worldsource Securities Inc. Investments products and services are provided by Brendan Greenwood through Worldsource Securities Inc., sponsoring investment dealer and a Member of the Canadian Investor Protection Fund (CIPF) and of the Canadian Investment Regulatory Organization (CIRO).
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