The First Slice for Tuesday, January 23, 2024

U.S. stock markets are off to a strong start this week, following a record-setting finish in the previous week, just as the fourth-quarter earnings season kicks into high gear. The S&P 500 recently reached an all-time high, but there’s some skepticism among investors about whether this upward trend can be sustained due to stretched valuations.

The Dow Jones Industrial Average rose 90 points, or 0.3%.
The S&P 500 was up 16 points, or 0.3%.
The Nasdaq Composite advanced 96 points, or 0.6%.

Lisa Shallett, the chief investment officer at Morgan Stanley Wealth Management, expressed concerns about the market’s outlook. She noted that with forward multiples already at historic peaks and ambitious earnings forecasts for the next 12 months, there’s a possibility that equity market gains might slow down in 2024. This could happen as better earnings are met with lower valuation multiples characteristic of a midcycle or soft-landing economic environment.

The earnings forecast for the S&P 500 in 2023 is currently in the range of $219-$221, but for 2024, the consensus estimate is higher at $242-$244. Shallett suggests that for the index to push through the 5,000 mark, investors will need to price upside to $250 by midyear confidently. However, she acknowledges the uncertainty in achieving this goal.

Despite the uncertainty, Matthew Tuttle, the CEO and CIO of Tuttle Capital Management, points out that the tech giants, often referred to as the Magnificent Seven, are in overbought conditions. He believes that the market’s direction may depend on resolving the disagreement between the market and the Federal Reserve on rate cuts.

As we move into the earnings season, we’ll watch closely for reports from companies like IBM, Netflix, and Tesla. Economic indicators such as GDP and the PCE measure of inflation, along with rate decisions from the European Central Bank and the Bank of Japan, will also impact the market………[read more]