Mid-Year Market Check-Up: A Clean Bill of Health

Heartbeat of US Economy and Market Continues to Pulse


  • The US market remains in a strong uptrend; international markets are improving, in our view.
  • Market strength is justified by positive economic and earnings trends, in our view.
  • We are monitoring technology trends, inflation, and credit conditions for signs of deterioration.

It’s hard to believe that we have almost crossed the half-way mark in 2024…a good time to grab our proverbial stethoscopes and check in on the market’s fitness. The results of our ‘physical’: the market still gets a clean bill of health, in our view.

The adage ‘Sell in May and Go Away’ may be weighing on investors’ minds as we head into the summer months, a time of lighter news flow and trading volume. Any thorough physical includes a cardiac ‘stress test.’ In our view, the market has been stress-tested over the last year by Fed policy uncertainty in the face of sticky inflation, as well as by deepening geopolitical issues across the world. Our read on the market’s internal ‘heartbeat’ - the message embedded in the price action of markets themselves - remains strong.

Source: LSEG Datastream, RiverFront. Data daily as of May 31, 2024. Chart shown for illustrative purposes only. Past performance is no indication of future results. You cannot invest directly in an index.

Market’s Internal Heartbeat Remains Strong, in Our View

The US market (as epitomized by the S&P 500 index) remains in a strong primary uptrend, as defined by the slope of 200-day moving average, or ‘200DMA’ (red line on top panel of Chart 1, above). The steepness of the 200DMA slope – currently annualizing at roughly 21% - is so strong that it’s ultimately unsustainable, in our view. The US stock market averages about one -10% pullback in a calendar year, which we have yet to experience in ‘24 - this suggests to us the ride this summer could get rockier, especially as we move closer to US election time.

However, our historical research suggests the odds of positive returns are above-average over the next 3-6 months from current readings on the 200DMA in combination with other technical factors. Put simply, strong returns in the stock market tend to beget more positive future returns…even if the ride in getting there may be volatile. This would be in keeping with typical US election years, in which markets generally rally strongly in the back half of the year in conjunction with greater certainty around which candidate will win. To this point, NDR Research recently calculated that the ‘Sell in May’ adage doesn’t work as well in election years; Since 1950, the S&P 500 has risen approximately 78% of the time from April 30 through October 31 during an election year, the highest percentage of any year in the four-year Presidential cycle. Given this backdrop, our investment team believes the stock market will close ’24 above current levels and has not yet felt compelled to reduce equity risk levels in our balanced portfolios.

US Still the ‘Fittest,’ but Bull Market Broadening Globally…A Good Sign, in Our View

The primary trend of this US ‘heartbeat’ is among the strongest of its type in the world, so it’s not surprising that the US remains a relative strength leader among its developed world peers. Even outside of the US, however, the primary trend for global markets (as defined by the MSCI All-Country World, Ex-US Index) is also positive, albeit by a less steep slope of approximately 9% (orange line on bottom panel of Chart 1, above). Furthermore, the global market bull is also continuing to broaden its’ scope, with over 60% of stock markets now trading above their 200DMA. This is a condition that has historically led to positive forward annualized returns since 1994, according to analysis conducted by NDR Research.

‘Heart-Healthy’: US Economy and Earnings Continue to Beat

We believe the current bull market is based on solid fundamentals, not simply irrational exuberance. First, the US economy continues to prove itself ‘exceptional’ – a phenomenon we’ve discussed in detail recently (see Weekly View on American ‘Economic’ Exceptionalism). The Atlanta Fed GDPNow Tracker, a real time forecast of economic growth, is currently annualizing at around 2.7% indicated year-over-year GDP growth for Q2, a solid reading, in our opinion. Looking forward, the US economy has been improving as of late after some moderation in late spring. May’s ‘flash’ Composite PMI -combining both manufacturing and services surveys - was up a blowout +3.1 points to 54.4, the highest in two years.

This economic strength is filtering into corporate earnings strength, one of the most important longer-term determinants of stock prices, in our view. The bulk of first quarter earnings results for the S&P 500 concluded emphatically last week, with bellwether semiconductor companies tied to artificial intelligence demonstrating strong earnings and cash flow growth. Overall, we view earnings for Q1 as a success, as we detailed in our Weekly View from May 21.

‘Vital Signs’ – What We Are Monitoring from a Risk Management Perspective

Even healthy patients require constant monitoring of health ‘vital signs.’ This monitoring is in essence a risk management strategy, so small red flags can be promptly noted, and behaviors changed to prevent or minimize the effects of chronic illness. Here are three fundamental ‘vital signs’ our investment team is watching closely:

  1. As Tech Goes, So Does the Market: We Continue to Favor Tech
    1. Technology and tech-related stocks make up over a third of the entire S&P 500 index – thus, as tech trends go, as does the market. Given our favorable view of tech, we view this concentration as a positive for the US market.
    2. In our opinion, tech fundamentals continue to exceed expectations, with greater free cash flow growth than of any S&P 500 sector. We believe high quality, high cash flow tech will continue to be a winning theme in a rising interest rate environment, as we wrote about in our Weekly View found here.
  2. Economy Passes the ‘Stagflation Stress Test’ So Far
    1. ‘Stagflation’ is a pernicious economic environment characterized by low economic growth combined with elevated levels of inflation and unemployment. While stagflation fears are rampant, we do not believe the current backdrop is stagflationary, given the strong economy, low unemployment, and core CPI and PCE indicators above the long-term Fed target of 2%, but well below what we view as the ‘danger zone’ of 4-5%.
    2. We would also note that surveys concerning businesses’ propensity to raise wages – a useful forward indicator for core inflation trends, in our view - have been moderating over the past six months.
  3. Credit Conditions: Not Indicating Stress
    1. Credit Default (CDS) spreads – which are insurance against sovereign default – remain contained in the US. In addition, corporate and high yield bond spreads are also not showing signs of any credit issues, in our view.

Risk Discussion: All investments in securities, including the strategies discussed above, include a risk of loss of principal (invested amount) and any profits that have not been realized. Markets fluctuate substantially over time, and have experienced increased volatility in recent years due to global and domestic economic events. Performance of any investment is not guaranteed. In a rising interest rate environment, the value of fixed-income securities generally declines. Diversification does not guarantee a profit or protect against a loss. Investments in international and emerging markets securities include exposure to risks such as currency fluctuations, foreign taxes and regulations, and the potential for illiquid markets and political instability. Please see the end of this publication for more disclosures.