Stocks to Consider Amid New US Market Highs & Election
$.SPX(.SPX)$ continues to reach new heights. With the U.S. presidential election coming up on November 5, historically, election years tend to be favorable for the stock market. Since 1960, the S&P 500 has generally risen in election years, with only the exceptions being 2000 and 2008 due to the tech bubble burst and the financial crisis, respectively.
Despite polls showing a neck-and-neck race, investor uncertainty hasn't dampened enthusiasm. This year, the S&P 500 has seen modest gains, with 47 new highs recorded in 2024. Following the election, the market might receive another boost, just like in past instances.
Understanding Market Trends
Melt-up signifies a situation where various factors converge, pushing the market to unsustainable highs. For investors, determining which stocks to consider is crucial in such an environment.
According to Jefferies' quant team, while the recent market surge has largely been driven by seven major tech stocks, the remaining 493 stocks in the S&P 500 have seen an increased share of gains this year. Thus, their price-to-earnings (P/E) ratios have risen from about 17 times in July 2023 to over 19 times now.
Cautions and Recommendations
Yardeni expresses caution, setting the S&P 500's 2024 target at 5,800, suggesting limited growth from current levels, projecting an 8.6% increase by the end of next year. They advise investors to seek stocks still within value ranges, though identifying such stocks can be challenging. Traditional value sectors like utilities and industrials appear overvalued compared to historical standards.
Jefferies points out that stock prices now reflect expectations of future Fed rate cuts. Thus, any future market gains will likely depend on corporate earnings growth. They have highlighted stocks that, despite strong financial fundamentals, lag in performance. Top picks include:
In today's high-valuation market, these value stocks may offer a smart strategy to navigate volatility and potential downturns.
Navigating Election Uncertainty
The election results may not become clear until long after Election Day. Experts suggest the outcomes are likely to be closely contested, which can heighten volatility across asset classes and disrupt market momentum.
Take, for example, the 2000 Florida election recount; investors flocked to safe assets, leading to a drop of over 4% in the S&P 500, while the yield on 10-year U.S. Treasury notes fell by 52 basis points, and gold prices surged.
According to Barclays strategists, options market data indicate traders expect the S&P 500 to swing by 1.8% on November 6, the day after the election.
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