Ron Rough presents our October 2024 video market update, including news on the current uptrend we are seeing.
Stock Market Update Transcription
Hello, this is Ron Rough with a market update for October of 2024. Can’t believe the year is already this far along. And once again, stocks are doing well, unlike prior few years. Bonds are actually doing well,, too. For those who’ve been listening to these updates this year, you know one of the big issues we’ve had all year is just the market has not been that broad. It’s been dominated by a handful of technology stocks.
Well, I have some good news for this quarter. We did see a broadening out. So to look at this first chart, you can see that overall as a technical analyst, you have to be pretty comfortable with where the market is. This is clearly an uptrend. The S&P 500 just hit an all time high the other day. This is October 10th while we’re recording this. So it’s all good. However, I’ve drawn a horizontal line here to show you we’ve not broken out by much. And if the market in October in advance of the election were to take another pullback, we could easily fall right back into this trading range that we were in since mid-July. But that’s, who knows? That’s up for the future, and we don’t know the future. Right now, the trend looks good. And even if you look at an index that’s much more broader than the S&P 500 – and this speaks to the difficulties that we’ve seen over the past couple of years – this is the Value Line Index; 1700 stocks equal weights to 1700. so you’re really looking at what the average stock has done this year. And again, this is a one-year chart. It’s still an uptrend. The chart’s a little sloppier than the S&P, and that makes sense. The S&P is still the leader year to date, but this chart also is in an uptrend and broke to a new high in September and is pulled back from that.
So this gives us some encouragement as we head into the end of the year. We’re leaving, as we go through October, we’re going to be leaving the historically weaker period of the market in the summer and into the fall, and then the end of the year, November, December, January, are three of the stronger months of the year. So the wind should be at our back. And yet the market performance was pretty good through the week period, too. This current table shows you the first six months of the year and how the S&P dominated all the other asset classes — small caps, foreign, high yield bonds, everything, you name it. In fact, for bonds, the performance was negative.
And yet in the third quarter, so now we jumped through just to show the third quarter, you can see the S&P 500 actually lagged a lot of the other areas. Small caps outperformed, foreign outperformed, emerging markets. So this is the kind of broadening that we want to see that would tell us this is a healthy stock market, a healthy market in general. Now again, as I mentioned, we’re heading into a stronger period of the market, so we would expect that trend to continue, but we’ll have to wait and see. The portfolios now are fully invested and we’re riding the trend. And when the trend changes, that’s when we’ll also make changes.
And I wanted to leave you with this chart at the end. The big debate going on right now is, is the market going to survive and go into a recession? Is the economy going to go into recession? This chart shows you the forward P/E of the S&P around the time of the first Fed cuts and the ones on the left, the blue bars show you the periods where the economy avoided a recession after the first-rate cut. And what you notice, it’s when in general, valuations were reasonable, reasonable to even low. The columns on the right in gray were periods of higher valuations, and those were periods where the economy actually found itself in a recession a year later, within a year later. Sorry to say, the current valuation, we’re well over 20, so today’s market would certainly be in that gray box area. I’m not forecasting a recession over the next year, but that’s what these numbers would suggest, that the odds of recession with valuations this rich are higher, even though evidence from the economy are pretty good. We had strong jobs number just reported. Also, inflation is continuing to come down, but a little sticky. But all of that suggests that the economy remains strong. But this table would leave us with some pause as we head into next year, and we’ll just have to see what happens. I mean, as a trend follower, we don’t try to predict what the market’s going to do. We react to what the market is doing, so that’s what we’ll do as we get into next year.
So until then, thank you for listening.
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