3 Predictions For The Second Quarter

seekingalpha03-27

Equities have enjoyed a solid first quarter as enthusiasm about demand from the AI revolution has been a key factor for gains.However, there is a growing possibility of a market correction in the ...

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href=https://seekingalpha.com/article/4680524-3-predictions-for-the-second-quarter><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Equities have enjoyed a solid first quarter as enthusiasm about demand from the AI revolution has been a key factor for gains.However, there is a growing possibility of a market correction in the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4680524-3-predictions-for-the-second-quarter\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4548","symbol_name":"巴美列捷福持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4680524-3-predictions-for-the-second-quarter","article_id":"2422446296","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/933666298/image_933666298.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2422446296","pubTimestamp":1711472437,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Equities have enjoyed a solid first quarter as enthusiasm about demand from the AI revolution has been a key factor for gains.However, there is a growing possibility of a market correction in the seco","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4548":"巴美列捷福持仓","IE00B7KXQ091.USD":"Janus Henderson Balanced 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ACC"},"translate_title":"3第二季度预测","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMD":1,"XOM":1,"XLE":1,"SMCI":1,"NVDA":1,"AMD.AU":1,"SPY":0.9,"US10Y.BOND":0.72,"SDS":0.6,"OEF":0.6,"OEX":0.6,"SH":0.6,"SPXU":0.6,"SSO":0.6,"UPRO":0.6,".SPX":0.6,"ESmain":0.6,"IVV":0.6},"content_text":"Equities have enjoyed a solid first quarter as enthusiasm about demand from the AI revolution has been a key factor for gains.However, there is a growing possibility of a market correction in the second quarter, with concerns about overvaluation and geopolitical risks contributing to a potential pullback.We highlight three things that seem likely to happen in the second quarter and their potential impacts to the market and economy in the paragraphs below.   allanswart We are rapidly closing in on the end of the first quarter of the year, with Thursday being the last trading day of the opening stanza of 2024 in a holiday-shortened trading week. The quarter has largely been a good one for investors, with the NASDAQ (COMP.IND) up nearly nine percent for the quarter while the S&P 500 Index (SP500) has risen just over 9.5% with dividends included. This most likely is as good as it gets this year, as markets appear poised to be more volatile and difficult to navigate in the months ahead. And with that, here are three predictions for the quarter ahead. Inflation Remains \"Sticky\" It is somewhat remarkable that equities have done as well as they have this year. Expectations based on futures at the end of 2023 were pricing in six Fed Fund rate cuts of 25bps each in 2024, commencing at the FOMC meeting last week. Now they see 2-3 cuts, beginning hopefully in June. The main reasons for the reduced forecast are stronger than expected economic growth as well as inflation that has become \"sticky.\"   Bureau of Labor Statistics Despite this reduction in rate cut forecasts, the market has continued full throttle with the rally that began in late October. As Goldman Sachs' Tony Pasquariello noted yesterday. The S&P is now 450 handles higher with the market discounting 3 rate cuts, than it was when the market discounted nearly seven cuts back in early January.\" The CPI hit a cycle high of 9.1% in June of 2022 as inflation turned out to be neither \"temporary\" nor \"transitory.\" Thanks to the most aggressive monetary policy since the days of Paul Volcker, inflation levels consistently fell over the next one and a half years. In 2024, gains against surging prices have largely stopped and inflation remains stubbornly above the central bank's official target of two percent. Both the February CPI and PPI readings came in hotter than expected earlier this month. The \"last mile\" on the inflation-fighting front is becoming increasingly challenging to conquer. There are myriad reasons for this, including a tight labor market and solid economic growth. In addition, the government is running up massive deficits, even during an economic expansion. After posting a deficit of approximately $2 trillion (taking out a $300 billion accounting gimmick around student loans) in FY2023, the federal government has seen a deficit of $830 billion in the first five months of its fiscal 2024 year. While this boosts economic growth in the short term, it is also a significant driver of inflationary pressures.   Gold Price Per Ounce (MarketWatch) In addition, gas prices are rising again, and both gold and other commodities like Cocoa have hit all-time highs recently. Therefore, inflation appears ready to continue to remain sticky, if not go marginally higher in the second quarter. This could easily undermine the case for the first rate hike at the end of this quarter, which could start to erode investor confidence. Oil Will Remain Strong: Other than short term treasuries, one of the sectors with the highest allocation in my portfolio in the first quarter was energy through covered call holdings in names like Exxon Mobil Corporation (XOM) and the Energy Select Sector SPDR® Fund ETF (XLE). These have been good bets to this point, as energy has outperformed the overall market so far in 2024.   Seeking Alpha This is largely due to oil prices moving steadily up this year, as can be seen in the chart above. I look for oil to remain strong in the second quarter due to economic growth and OPEC maintaining production cuts. Black Gold could also move significantly higher if one of multiple geopolitical problem areas spins out of control. We have Ukraine increasingly targeting refinery operations in Russia with drones, one key reason behind the recent rise in oil prices. Given this is one of the few ways the country can strike back at Russia's territory, I look for these attacks to continue, if not escalate. The Houthis have largely shut down the Red Sea to transport from Western affiliated vessels. This means much longer journeys around Cape of Good Hope. Just over 10% of world's oil moves through this passage. It also looks like Israel is planning an offensive in Rafah despite the recent UN resolution. If this happens, this could escalate tensions in the region and bring Hezbollah in Lebanon and other Iranian proxies into the conflict. The Houthis could also be given more advanced weaponry to utilize against shipping as well as energy facilities in Saudi Arabia. Unfortunately, if a supply shock happens, the U.S. has more limited options to respond as the Strategic Petroleum Reserve {SPR} was drained significantly before the 2022 mid-terms and has not been fully refilled. Currently, the SPR has around 362 million barrels of crude. This compares to 565 million barrels in March 2022. The administration has stated its intention is to refill the reserve to their prior levels by the of this year. This additional demand is another tailwind for oil prices. The SPR stood at 638 million barrels in early 2021 it should be noted. A Break Occurs: A large part of the rally in the markets this year has been powered by enthusiasm for AI. It is easy to see why given the blowout fourth quarter results from the likes of Nvidia Corporation (NVDA), Super Micro Computer, Inc. (SMCI), Advanced Micro Devices, Inc. (AMD) and others benefiting from the huge demand being generated from the AI revolution. However, earnings growth throughout the market has been much sparser. As Mark Hulbert noted on MarketWatch yesterday, while non-inflation adjusted, or nominal, GDP is 10% higher today than it was two years ago, S&P 500’s earnings per share are 8.5% lower. Factoring in the impacts from AI, Bank of America lifted its earnings forecast for S&P 500 in 2024 to $250 from $235 two weeks ago. This would imply 12% growth for S&P 500 profits this year. That leaves the S&P 500 priced at 21 times forward earnings. That would be at least fairly valued in a ZIRP world. However, valuation seems stretched when the yield on the \"risk free\" 10-Year Treasury (US10Y) is above 4.2%. Long-time analyst and chief investment strategist at CFRA Research Sam Stovall noted yesterday that the S&P now trading at a 33% premium to its average price-to-earnings ratio over the last 20 years.   Financial Times Corporate insiders seem to be signaling the market is overvalued as the ratio of corporate insider selling to insider buying has risen to its highest level since the first quarter of 2021. Given current valuations and a rash of geopolitical concerns highlighted in the paragraphs above, as well as a deteriorated commercial real estate sector, which I recently wrote about, I would be quite surprised if investors don't see at least a five percent pull back at some point in the second quarter. An eight to ten percent bout of profit taking seems a likely scenario to me if we get some \"Sell in May and go away\" trading action.  And that is my market outlook as we look to turn the page on the first quarter this week. Not surprisingly, 50% of my portfolio is parked in short-term treasuries yielding nearly 5.4% awaiting lower entry points for deployment.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2422446296"}