1. Global equity markets began the year on strong footing.
2. Gold remains a stalwart performer. Since the U.S. stock market trough at the end of October 2023, gold is the only major asset class that has kept pace with the S&P 500 Index.
3. Inflation is a risk to U.S. equity market valuation multiples. The rate of inflation has plateaued above 3%. Any uptick in inflation will likely be a headwind for U.S. profit margins.
The “core” inflation rate (CPI excluding food and energy) remains over 1% above pre-pandemic levels. Second waves of inflationary pressure are also not uncommon throughout history. The Atlanta Federal Reserve Bank’s measure of “sticky price” inflation (think rent, insurance and medical care) has dipped but is still running above a 3.5% annual rate. We anticipate a further moderation in owners’ equivalent rent. To the extend a moderation in rents does not occur, the Federal Reserve will likely delay accommodative monetary policy.
4. Thus far in fourth quarter 2024 earnings season, S&P 500 companies have reported strong earnings growth, on the back of profit margin expansion. With 77% of S&P 500 companies have reported, earnings have increases 16.9% and revenues have increased 5.9% year-over-year, according to FactSet.
Source: FactSet
Source: FactSet