If asked whether the stock market would hit a record high in 2024, what would you say?  As it turns out, one could say with complete confidence that 2024 would mark a record high.  Guaranteed!  Why such boldness? It already did!  Today the S&P 500,  Dow Jones Industrial Average, and the NASDAQ 100 all hit record highs.  Great news?   One would think so.  However, it seems the answer might be both yes, and no.

Great news for long investors anytime the market hits a new high.  That is for certain.  However, it has been over two years since the last record was recorded by the S&P 500.  Although at a high today, the market just now surpassed the record high set in early January 2022.  The market is up less than one percent from the previous record two years ago.

Furthermore, the rally has been very narrowly driven.  With the S&P 500 index being market-cap weighted, large growth companies have driven the market higher.  More diversified portfolios comprised of various asset class sizes, growth and value, along with domestic and international have not fared as well.  In fact, even over this shortened three-week period of 2024, the market cap weighted S&P closed up 1.47% YTD, whereas the more esoteric even-weighted S&P closed down 1.26% YTD.

Things to consider

• Street consensus 2024 earnings are expected to increase 11 – 12% over 2023, per FactSet.
• The market is trading at approximately 19.5 times forward earnings.  According to FactSet, the five-year average is 18.9, with the ten-year being 17.6.  Therefore, the market is a tad rich relative to forecasted 2024 earnings per share.      
• The FOMC of the Federal Reserve currently suggests 75 bps of rate cuts are in store for 2024.  Many economists and strategists predict more.  The higher the predicted cuts suggests less confidence in a soft-landing.  It would be unlikely for the FOMC to cut further or as aggressively with a soft landing.
• All eyes will be on next week’s PCE numbers.  This is known to be the Fed’s preferred measurement of inflation and might provide insight into their outlook.
• Geo-political concerns remain.  Even without escalation, the Red Sea situation is causing shipping costs to increase and could also eventually impact the price of oil.  Escalation could cause further concerns resulting in potential problems from inflation to an expanding conflict.  This could further perpetuate concerns regarding inflation and perhaps more importantly world stability.
• Money Market Funds were over $6 trillion as of the end of Q3 per the St. Louis Federal Reserve.  Likely substantially higher, now.  Where does the money flow as rates begin to decline?  Equities, perhaps?
• Artificial intelligence is real and could be as revolutionary as prior significant changes such as the internet, automobiles, etc..
• Weight loss drugs could drastically impact numerous sectors.  Many for the better.
• Currency fluctuation could occur as the Fed likely moves before other Central Banks in easing rates.
• The NASDAQ Composite is still trading below the highs of 2021. 

Putting it all together

Thrilled to see the markets hit record highs!  This is indeed good news.  But be careful in reading too much into this, for the market is basically flat from where it was trading over two years ago.  Fundamentals of projected earnings are encouraging should the anticipated growth materialize.  Based on those expectations, the market is neither overly rich nor certainly overly inexpensive.  Nonetheless, great to see a record high even if concentrated in certain areas.