On Main Street, people are being more frugal, and it seems like the stock market is following suit.
Consumers have kept spending, but they’re trying to get the most for their money and are waiting to make big purchases until the Federal Reserve lowers interest rates. This is shown by corporate earnings and economic data.
It looks like the same thing is happening on Wall Street. The equal-weight index SP500EW 0.32% of the S&P 500 hit a new record high on Monday. This index tries to be “size neutral” by giving each company in it the same weight based on its market value.
As Robert Pavlik, a senior portfolio manager at Dakota Wealth Management, put it, “it tells you that the rally is spreading out.” He said that buyers seem to be looking for deals in other parts of the market after the big rise in the “Magnificent Seven” tech stocks earlier this year.
The standard S&P 500 index SPX 0.16%, which is a market-capitalization-weighted measure, has done very well in 2024 thanks to positive feelings about AI. At the middle of the year, AI star Nvidia Corp. NVDA 0.58% had added $1.8 trillion to its market value. This was a lot more than other companies in the index, like Etsy Inc. ETSY 1.14%, which has a market value of about $6.2 billion.
A break from the rise was taken by the S&P 500 and its equal-weighted version on Tuesday. The Dow Jones Industrial Average DJIA -0.07% and the Nasdaq Composite COMP 0.21% also did the same. Bloomberg says that the S&P 500 closed Monday just 0.7% below its previous record high point in mid-July.
The Magnificent Seven will still help the company make money, but not as much as other parts of the stock market, according to Brian Vendig, chief investment officer at MJP Wealth Advisors.
He said that was because people think that businesses outside of tech will gain from supply chains getting back to normal after the pandemic, which will slow wage growth and cause companies to change their business models and balance sheets.
Vendig said, “That doesn’t mean tech is a bad place to be because they’ve had a good run.” “However, earnings are going up at other companies.”
John Butters, a senior earnings analyst at FactSet Research, says that the S&P 500’s earnings-growth rate, which is made up of real results and estimates, was 10.9% in the second quarter. If you take out the “Magnificent Seven” companies, the average rate of earnings growth for the other 493 companies was 6.2%.
Choosing even more winners?
The “Magnificent Seven” (Apple Inc. AAPL 0.02%, Amazon.com Inc. AMZN 0.68%, Microsoft Corp. MSFT -0.21%, Nvidia Corp., and Alphabet Inc.) had a great year. GOOG -0.78% In the past few years, companies like Google (GOOGL -0.80%), Meta Platforms Inc. (META 0.98%), and Tesla Inc. (TSLA -0.15%) have helped push the stock market up.
BofA Global says that at their peak in July, the seven stocks were worth a record $17 billion, which is 34% of the U.S. market value.
But they might not be the only ones who win in the coming months. A month ago, Craig Sterling, head of stock research at Amundi U.S., said, “I think we are seeing a regime shift.” He was talking about signs of an earnings recovery outside of the big tech companies.
As Sterling put it, “it’s fits and starts.” “However, I believe that earnings will help make that happen.”
Sterling thinks that next year, earnings growth will slow down for the “Magnificent Seven” but pick up for the rest of the S&P 500, as long as the U.S. stays out of recession.
Different economic figures, a heated race for president, and investors’ hopes for Fed rate cuts are some of the other things that have been on investors’ minds.
Based on past events, Crit Thomas, global markets analyst at Touchstone Investments, said that companies’ profits tend to start growing again when the economy comes out of a recession.
Thomas said, “Today, we are sort of looking at a soft-landing scenario.” He also said it was too early to tell if the Fed would cut rates because inflation has continued to fall or because the economy would need help. “We don’t know a lot of things.”
The head of Amundi U.S. said, “We go where valuation leads us.” “There must be a way for companies to get value.”
