2024 mid-year outlook, JD Power EV study: Market Domination Overtime

The major indexes (^GSPC, ^DJI, ^IXIC) closed lower on Friday. Both the S&P 500 and Nasdaq Composite have closed higher in seven of the prior nine months, with the Nasdaq also closing higher 9 of the prior 10 weeks. Friday's close also marks the end of the year's second quarter. JPMorgan Private Bank released its 2024 mid-year outlook, titled "A Strong Economy in a Fragile World." Ned Davis Research chief US strategist Ed Clissold joins the show to give insight into recent economic data, share takeaways from the first half of the year, and make predictions about the market moving forward. A J.D. Power study revealed several issues troubling battery electric vehicles, finding 266 problems per 100 electric vehicles versus 180 per 100 internal combustion engine vehicles.

For more expert insight and the latest market action, click here

Video transcript

That the closing down on Wall Street and now it is market domination over time.

We are joined by Jared to get up to speed on the action from today session.

Let's see where the major averages ended on the day lower after starting the day higher, pretty much across the board here.

So the dow down by about 41 points about 1/10 of 1% here on the week, we see really little change very much a side movement.

The S and P 500 down 4/10 of 1% on the day.

And also seeing that drop as the day progressed, of course, it is end of quarter, end of month and the first half of the year.

So you do see a traders sort of rejiggering positions going into that as they wanna sort of solidify what their um reports are gonna look like uh for the first half and for the first quarter, for the second quarter.

And the NASDAQ the worst perform on the day down 7/10 of 1% here.

Um So seeing that downward movement also quick check on what's going on uh with yields as we got that inflation data this morning that came in bang in line with estimates continue to show that we are seeing uh inflation moderate and yet not seeing moderation in the 10 year 4.34%.

Jared.

Yes.

Uh kind of a ho hum way to end the quarter here.

A little bit of downside action in the indices.

And uh I'm going to do a fuller recap in about 30 minutes with Josh here.

But let's take a look.

We're looking at the NASDAQ 100 day here.

A lot of red in the mega caps.

Let's just quickly put what happened during the week and you can see kind of a mixed bag here.

Chip stocks do so well and we'll get to those in a second.

But overall, let's check out the sector action, only energy and communication services in the green to the downside utilities down the most 1.8% but also materials, staples and tech all down 1% or more.

When we take a look at the leaders here, regional banks did the best Kre up 4.5% or thereabouts solar energy day after the debates.

They are not doing well.

Could be an election play there.

Also Bitcoin this week down about 6.7%.

Cannabis stocks, Chinese stocks, so a little bit of risk off here but certainly no disasters.

And again, we'll be exploring this in depth, Josh in just a few minutes.

I look forward to it, Jared.

Thank you.

As the first half comes to a close, the S and P 500 is not a tear.

It's up about 15% on the year already driven by, largely by Big tech and A I.

Our next guest thinks this bull market still has room to run for more.

We're bringing in Ed Clissold, chief us strategist at Ned Davis Research.

Ed.

It's good to see you.

So it sounds like what you're saying, Ed here is, listen, if the economy is decent and earnings are decent, let's not overthink it that the good times can continue.

Yeah, that's a great summary.

Let let's not get too caught up in the minutia.

Uh earnings growth is going to be pretty solid this year.

We're getting quarter on quarter, acceleration and growth.

It's probably gonna be some downside revisions just because second half estimates are a little bit rosy but overall good earnings growth and while the economy slowing the chances of a recession of the near term are pretty low and that's a recipe for the fed to likely be able to cut probably once in the second half of the year.

And so a slow easing cycle decent earnings growth um and moderate and falling inflation.

That's a pretty good backdrop, you know, and um, you might have seen JP Morgan's Marco Kano came out with a note today and said he thinks the S and P 500 is gonna fall to 4200 by year's end.

Among other things, he thinks that the market is pricing in too optimistic, an outlook for a broadening of earnings growth, uh, beyond tech mega cap.

What do you think of that scenario?

Well, I, I think a 4200 price target implies a recession is coming.

You normally don't get that kind of a decline unless you're going into a recession.

So, uh, it's not just a hey, earnings growth may not be as good as we think that that's really saying that there's some, some really bad news coming down the pike because that's not really what, what we think is probably going to happen.

Um Now I mentioned earlier, you know, earnings expectations, second half, probably a little bit too rosy consensus estimates about 20% for Q three and Q four versus the previous year.

It's probably more like high, um you know, high single digits to low double digits.

So there'd be some down downward revisions.

But I think if you want to talk about risks, probably the bigger risk is that after such a good first half of the year, a lot of people are, are in the market, so a little bit of bad news could cause a pullback, but we'd be looking for a pullback to maybe a AAA small uh correction, not necessarily a bear market.

And ed another, another, you know, we're talking about variables for, for investors to consider another one I want your, your take on is just valuation when you, when you look at where we're at right now with the market ed, how does valuation look to you?

Does you know, attractive extended?

How would you characterize it?

Yeah, stocks are, are a little bit stretched.

If you were to look at the trailing pe for the S and P 500 it's, you know, above its long term average, not hugely.

So, you know, like to say, if it's more than two standard deviations, um that's like the top 5% uh of observations, that's when it becomes like a real front burner issue.

Usually it's when earnings growth rolls over, that's when these kind of moderately elevated valuations become a bigger issue.

I think where I'm more focused for the second half of the year is relative valuations that is stocks versus bonds.

We've entered a regime where if bond yield uh spike, then we saw that, for example, last year, 10 year got up to 5% and we got a 10% decline in the S and P 500 pretty quickly.

I think that's the bigger risk, not our base case.

But if let's say inflation does remain sticky and you get inflation expectations get out of hand and interest rates start to rise again.

That's when investors may say, hey, I'm getting a better deal in the bond market.

So let's focus there.

So that's, I think where the valuation risks are um, what do you think is gonna propel stocks higher in the second half of the year?

Is it gonna continue to be?

Tech mega caps?

Is it gonna be other areas that are gonna start to play?

More catch up?

Yeah.

So as of right now we're overweight, uh, tech, we're overweight growth.

So that's kind of more, more of the same and, and more broadly, if you're getting a, a modest slowdown in economic growth, the stocks that tend to do well are growth stocks because they don't need the economy to do very well to grow their earnings.

They're not like an industrial company or materials or energy that really levered to the economy.

Uh So that's where we are at the moment.

Now, I think if, if we do get into a little bit of a, of a pullback or even closer to correction territory and then you want to get defensive, that's where, you know, utilities, staples, um uh uh health care and telecom, those tend to do best again, that's not where we are at the moment.

But if people are thinking along those terms, maybe now is the time to do a bit of research to see, you know, which sectors and which stocks you want to focus on.

And, you know, I can't let you get out of here talking about politics.

You had that big debate last night.

Um And I'm just curious, how are you thinking about this election?

Just as a, as a market strategist.

How are you thinking through it?

Yeah.

So the way I think about it is election year rallies often start when it becomes clear who the winner is going to be.

Like in 1996.

Very clear.

Clinton was going to get re-elected.

He had two very small Pullbacks first half of the year and the market ripped higher.

The second half 04 different situation.

Bush Kerry, very close.

It wasn't until election night that it became clear, uh, Bush was going to win and then after that, uh the market retired last couple of months of the year.

So we were thinking this is going to be a very close election probably, you know, still is.

But you know, if momentum starts to move towards Trump's direction because of Biden's performance, maybe that election year rally starts a little bit earlier.

We had a good start to the year, second best, first half of election year since 1928.

So you've already priced in some good news, but maybe some of that general election uncertainty dissipates if it becomes clear who the winner is going to be.

We shall see.

I'm not holding my breath.

Thanks a lot.

Appreciate it.

Well, Jp Morgan, thanks Jp Morgan releasing its new 2024 mid year outlook today here to help break it all down as young finance Josh Shafer.

I've alluded to this a couple of times because it was Marco Kalan.

Um one of the few bears who remain, Marco holds a 4200 call on the S and P 500 which would be an over 20% fall from where we are now.

They haven't moved their target, which I think is notable.

And a lot of times I think you do see this grey where you have a very low target.

I don't think he's that tempted to chase exactly where the market's gonna fall.

So like 4200 to me is a little bit arbitrary when it comes to that.

But essentially J PM saying here similar things they've been saying since the start of the year, which is you have frothy sentiment, you have valuations that are high, they don't feel great about that sort of dynamic in the market right now.

And so I kind of took that note and then I broaden it out to what other strategists are saying to and ki kind of created three risks that people are watching heading into the second half of the year because we kind of went up in more or less a straight line to start the year.

And one thing that a lot of folks are talking about right now is the labor market.

And I think that's gonna be a continued focus going into the second half of the year.

And specifically, if we see any kind of a downturn and that goes with labor market downturn would equal economic weakness.

City economics team still has a recession call.

Scott Kroner mentioned that in his note today, he's their equity strategist.

But he said, well, if my team is still sitting on a recession call, maybe we do get a pull back in stocks.

Their call is 5600 in the S and P. But at some point, maybe that there's a little bit of a push pull there when it comes to the labor market.

And then as far as sentiment goes, city uses this thing called the Levkovich index to look at whether we're in a period of euphoria or a period of panic when it comes to sort of stock market.

Um different aspects of the market you can see here, we just barely got into euphoria over the last couple of months and so you could call sentiment frothy, but kind of one of the other takeaways from this chart is you can see how long sentiment can be frothy.

If you look at the two thousands period there, we were well above that light blue line for a long time.

We were above.

It's still in the, it's still in the bounds.

It looks like in that chart, it's a little bit above it if we really zoomed in.

But yes, it's not out of control.

And, and by the way that that index named for late strategist Tobias Levkovich who was a wonderful person to talk to about the markets.

Um And it's great that they have that index that is named for him.

A final thing we were talking about Pullbacks and I think it's just important to understand that we haven't had a real pullback yet.

This year, we had a 5% pull back in April.

But when you look long term, the average is closer to about 14% over the last 40 years for the S and P 500 Keith Lerner over at Truist highlighted this a while back and we've sort of just been updating that chart.

And I think the takeaway here being you almost should expect more of a pull back at some point.

It wouldn't be abnormal at all the way the stock market went up actually for the first six months this year is probably more abnormal.

And so as you think about things you guys have been talking about today with the election and potential volatility maybe coming into the market.

Remember the VX is near historic lows.

Our Jerry Bookery talks about it most days and it hasn't moved all that much.

So if that starts to play in a little bit more, maybe that's when you finally see stocks stop going up seemingly every day.

Yeah.

You know what I liked about this note too.

They talked about the election and the debate and obviously they published before the debate and they, and they told their clients, you know, that it could really clarify, talking about the debate, the key policy platform for the candidates.

I don't know, I don't know.

Policy clarified something, I guess, I don't know, I don't know, policy maybe they'll revisit that one.

Joshua.

Thank you.

Appreciate that.

Coming up.

Find out how to best position your portfolio ahead of any election year volatility.

More market domination over time is coming right up.

The first presidential debate is now in the rear view mirror and investors are looking for ways to play the market ahead of the election in November and joining us now to help us understand how to do.

Just that is Alex Saunders, head of quantitative macro strategy at city research, Alex.

It's, it's good to see you.

So you, you were pretty uh this, this debate for your clients out.

You said, you know, you thought the debates, policy discussions would be rather surface level, you nailed that one, Alex.

Then you go on to say, um you thought the market effects such as they, they may be would be rather short lived.

How come Alex?

Why did you make that call?

Yeah, I mean, the, the big point to make and we wrote it in our, in our preview yesterday is that we're still very early in the election cycle.

We typically, we don't have debates this early.

I mean, we're still in June.

And um one thing that didn't change last night is that we're just one day closer.

Um The reaction of the, the betting markets is quite pronounced in terms of Trump's prospects.

Um but it will take a week or so.

Um, before that's reflected really in the, in the voter polling.

So the market reaction that we did see was quite mild and it, it mean reverted.

Um As you, as you had said, we, we expected that debate to be policy light and it, and it was policy light, but there was some incremental information that we took from the debate yesterday.

Um Trump leaned into the tax cuts and there was nothing really of substance on entitlements or the deficit questions.

He pivoted away.

Neither candidate really addressed those concerns.

So we think that later in the cycle, those fiscal concerns could come to the fore, Alex.

What in the wake of the debate?

I'm curious what you're hearing from clients, what questions they have, what concerns they have, what are they coming to you with today?

Yeah.

So it is really focused on the rates market I would say and the point that we would make on that is in terms of the market impact, the make up of government is crucial.

So split Congress is much more bond market friendly because there was just less capacity to implement some of these large potential policy changes.

So in that sense, if and how Biden's performance yesterday affects down ballot Dems is also important.

They were polling ahead anyway.

But for the moment, it really is a rate story we would say that currently, there's, there's an uneasy tension between these fiscal concerns and the deficit and then the cyclical factors such as slowing growth, a labor market that you had mentioned earlier and, and a Dovish Fed and we don't expect that to be resolved in the near term.

Both the market and the fed are highly data dependent um as we move closer to election day and if the polling leads towards a red sweep or even a blue wave, those concerns become more important.

But between now and then there's plenty of macro relevant data.

And now you do point out broadly, you know, election year is typically uh strong for equities.

Just break that down for us.

What, what do the historical patterns teach us?

Yeah.

So typically you, you have um a strong equity performance in an election year and that performance is even stronger when you have an incumbent running as we have now.

Um But the other thing that we highlight for clients and again, it goes to that we're, we're still quite early in in this election cycle is around about 2 to 3 months according to our studies, not just in the US, but also global elections.

Um You do tend to get a bit of a risk premium built in.

So it's a small pullback, as you might say in equity markets.

So that's something to be aware of.

But again, that is a uh Labor Day Post Labor Day story.

September time rather than something that you should be worried about.

Now, during the summer where we have, um, uh, fed meetings, we have another earnings season and citi even thinks that the fed will potentially cut rates before there is an election.

And Alex, to your point, you know, you are sort of talking about this dual drivers for the market in the election and the fed, the fed has consistently been the more important driver, right?

And this is something that we have heard from strategists over and over again.

So do you think then as we get to two months out from the election, say that that will flip and that the election will become more important than the fed or do you think the fed is still going to hold primacy there?

No, I think, I think there will be an inflection point, there will be an inflection point from the fed again.

This will probably be post the September meeting um towards election concerns and to a certain extent, it will depend on the polling if we do have something where it looks like there's split ticket voting and we could have a split Congress which is quite likely given the electoral map in the Senate and in the case of a democratic win less likely.

But the House is more challenging for Republicans.

If we do get a split Congress, I think the bond market will be, um, will be breathing a sigh of relief.

But if polling leans either way, then those fiscal concerns will, will become much more of a driver than the nearer term policy of the, of the FOC and the Fed and Alex.

Just to put a fine point on it here.

What would be the ideal scenario for equities in your estimation in terms of both the presidency and Congress?

I assume it would be split Congress.

But then do the markets have a preference for either candidate at this point?

Yeah, that's a very, very good question.

I think what we saw during the debate in terms of the market impact was really like a mini window or a microcosm of, of how the market views it.

Um And in terms of, you know, I think that Trump had the better of the, of the debate, we saw equities rally, we saw the dollar rally and we saw bonds sell off.

And so I think in the short term that is um that would probably be the um the best scenario for equities.

But again, it's conditional on these fiscal concerns, not really arising.

So a split Congress po potentially with a, with a Republican president is something where the, the, the the market, the equity market would, would probably rally on.

Well, we'll check back in as we get closer to it all.

Thanks a lot, Alex.

Appreciate it.

Thank you a bumpy road for evs Automotive research firm JD Power, revealing several issues troubling battery, electric vehicles.

Yahoo Finance's Pro M and joins us here with the details.

So already we have slowing sales.

So what are these issues that we're talking about?

Yeah.

You know, so in the past people have thought ice or sorry, evs are sort of uh not, they don't need much maintenance.

They're, they're, they're simpler to use.

They just have a battery, a motor, some wires, you don't have 1000 parts spinning in a motor.

But apparently with the JD Power's latest uh initial quality survey uh amongst the brand rankings that they do, they do also, they break it down back by car and they notice that uh they do a, they do a uh uh a metric called uh problems per 100 vehicles.

And for EVs that, that number is 266 problems per 100 vehicles.

Whereas for gas powered cars, it's only 100 and 80.

So 86 less problems per vehicle or per 100 vehicles kind of a big, big disrupt there.

It's kind of kind of surprising.

And JD Power said that this is because these evs of course, are more, they are more, they're newer, they're more complicated and lower technology, people bringing them into the repair shops because they have issues with certain things.

Um And then that the kind of the, the complexity of that is also an issue, you need only so few kinds of technicians that can deal with that.

So the evs are kind of giving them more problems, but in particular Tesla, their, their initial Q score has sort of gone, gone down in, in a bad way and they surmise because changes to the, to the new model.

Why in mile three?

No, no, no, no, uh, turntable stocks, no wiper control.

It's all in the screen or, or it's on the, or it's on the, on the steering wheel.

So that's kind of causing some problems for people.

They're complaining about that and they surmise that's why Tesla's score has gone down in the most recent uh rankings beyond Tesla.

Any of the brands get, get knocked around a bit.

Yeah, so we have, uh you know, we look at the top, the top brand, believe it, that was ra m uh that they have been a brand that sort of been knocked around because of their trucks had some issues, but this year doing really well here, uh some of the worst brands are, we're, we're Tesla, Rivian Pol Star.

Um, unfortunately for them dodge also pretty bad there as well amongst the luxury brands is Porsche.

Uh, Lexus and Genesis were the top three luxury or premium brands uh in the rankings.

All right.

Thank you.

Appreciate it time.

Now for to watch next week starting off with jobs, the June Jobs report is coming out on Friday.

The economy is forecasting non farm payrolls and hourly wages to decline on the expecting unemployment to hold steady and ahead of Friday's job support will be getting a new jolts report for May on Tuesday.

That number expected to take down slightly compared to April all the job data next week giving us more insight into the health of the labor force as the fed continues to we timing of great cuts.

And speaking of the fed fed chair, Jerome Pao is set to speak at the European Central Bank Forum in Portugal on Tuesday.

Following that minutes from the Junes FO MC meeting are due out on Wednesday and finally Constellation brands will be reporting earnings on Wednesday.

The beer, wine and spirits producer announcing first quarter results.

Analysts expecting the report to highlight the durability of the beer business driven by volume growth and higher prices and that'll do it for today's market domination over time.

Be sure to come back Monday 3 p.m. Eastern for all of your coverage leading up to and after the closing bell.

But don't go anywhere on the other side of the break.

It's asking for a trend.

I've got you covered for the next half hour with the latest and greatest market moving stories.

You can get ahead of the themes affecting your money.

Stay tuned.