Strong outlook for stocks heading into 2nd half, plus downside volatility, 2Q earnings preview, housing market, and Boeing
Strong outlook for stocks heading into 2nd half, plus downside volatility, 2Q earnings preview, housing market, and Boeing
The Sandbox Daily (7.8.2024)
Welcome, Sandbox friends.
Boeing has plead guilty to criminal fraud charges stemming from the deadly 737 Max crashes in 2018 and 2019. The aircraft maker agreed to pay a $243.6 million fine. Prosecutors said Boeing would also have to invest at least $455 million in compliance and safety programs, among other things. A criminal record could pose problems for its military contracts.
In other news, Morgan Stanley strategist Mike Wilson says a 10% stock market correction is “highly likely,” Paramount Global agreed to merge with Skydance, and Federal Reserve Chair Jerome Powell heads to Capitol Hill on Tuesday and Wednesday to provide updates on the economy to Congress.
Today’s Daily discusses:
mid-year checkup bodes well for stocks
they say “never short a dull market”
2nd quarter earnings season preview
turnaround for housing market still a ways off
Let’s dig in.
Markets in review
EQUITIES: Russell 2000 +0.59% | Nasdaq 100 +0.23% | S&P 500 +0.10% | Dow -0.08%
FIXED INCOME: Barclays Agg Bond +0.03% | High Yield -0.03% | 2yr UST 4.631% | 10yr UST 4.277%
COMMODITIES: Brent Crude -0.98% to $85.69/barrel. Gold -1.33 % to $2,365.7/oz.
BITCOIN: +1.54% to $56,708
US DOLLAR INDEX: +0.14% to 105.017
CBOE EQUITY PUT/CALL RATIO: 0.56
VIX: -0.88% to 12.37
Quote of the day
“Failure will never stand in the way of success if you learn from it.”
- Hank Aaron
Mid-year check up
The U.S. large-cap benchmark S&P 500 is up +16.8% since New Year's Day. Today it closed at another all-time high, its 35th in 2024. It’s perfectly normal for the stock market to achieve many new all-time highs during bull markets.
What’s more, this type of start to a year for stocks has typically led to more gains in the 2nd half.
Since 1950, when the S&P 500 index has gained more than 10% in the 1st six months of the year, its return has averaged 7.7% over the next six months – well above the historical average of 4.8%. And it has been higher 83% of the time.
For the full calendar year? The results are equally as impressive. The index has always finished the year higher, with an average return of +25.1%.
Source: Ryan Detrick
They say never short a dull market
Like most Wall Street clichés, “never short a dull market” has some truth to it.
A monotonous grind higher may spark boredom or inspire traders to look for a new trend. The doomers often cry wolf about complacency. But, more often than not, inertia keeps a bull market intact until a catalyst breaks both the low volatility and the uptrend.
The S&P 500 is in its 11th-longest stretch without a 2% down day since 1928 – currently spanning 344 trading days. And this comes in spite of headlines calling for recession, sticky-high inflation, inconsistent economic data, the fastest tightening cycle in at least four decades, and a banking crisis in the spring of 2023.
Low volatility streaks can last for long periods of time, as you see in the chart above.
The absence of downside volatility has been one constant throughout this bull market, like many before.
Source: Ned Davis Research
2nd quarter earnings season preview
With the 2nd quarter corporate earnings cycle beginning in earnest later this week, equity investors will be closely parsing through the magnitude, direction, breadth, and quality of earnings over the coming weeks. The +16.8% YTD rise in the S&P 500 has been equally driven by EPS growth and P/E multiple expansion thus far.
Consensus expects +9% YoY earnings growth in Q2, which would mark the strongest quarterly growth since Q4 of 2021.
Analysts expect Information Technology and Communication Services to deliver the fastest EPS growth at the sector level, led by the mega-cap technology stocks.
In aggregate, the 6 largest stocks in the index – AMZN, AAPL, GOOGL, META, MSFT, and NVDA – are expected to grow 2Q EPS by 30% YoY, while the other 494 to grow by just 5%. In other words, the leaders continue to do the heavy lifting.
And yet, consensus expects the majority of these meg-cap AL-related tech stocks to report a slowdown in sales growth and/or contraction in margins from the 1st quarter to the 2nd.
Source: Goldman Sachs Global Investment Research
Turnaround for housing market still a ways off
Homeownership has become unattainable for many Americans due to rising house prices, low supply, modest income growth, and high mortgage rates.
The NAHB/Wells Fargo Cost of Housing Index (CHI) indicates that in Q1, a median family needed 38% of their income for a new home and 36% for an existing one.
This data series is a quarterly analysis of housing costs in the United States and in specific metropolitan areas, with the CHI representing the portion of a typical family’s income needed to make a mortgage payment on a median-priced home. They assume a national median income of $97,800 and a median new home price of $420,800 ($389,400 for a median-priced existing home).
Regional affordability varies, with the Midwest remaining mostly affordable, while the West and certain metro regions along the eastern seaboard as largely unaffordable.
Source: National Association of Home Builders
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.