Favor those assets less correlated to tech, AI leaders - Lazard
Nasdaq up ~0.3%, S&P 500 edges up, Dow just below flat
Cons disc leads S&P 500 sector gainers; healthcare weakest group
Euro STOXX 600 index down ~0.4%
Dollar ~flat; crude, gold slip; bitcoin off ~2%
U.S. 10-Year Treasury yield dips to ~4.45%
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FAVOR THOSE ASSETS LESS CORRELATED TO TECH, AI LEADERS - LAZARD
With the S&P 500 Index trading at more than 21x forward earnings, Ronald Temple, chief market strategist at Lazard, says further upside is likely to be driven by earnings growth rather than increased price-to-earnings metrics.
Meanwhile, Temple does think the S&P 500 Index can continue to be led by tech stocks, but not to the extent it has been in recent years.
According to Temple, from the October 2022 lows to mid-June 2024, the S&P 500 Index generated a total return of 55% with 10 stocks responsible for 60% of that return, leading him to say that the narrowness of the U.S. market's advance has been at or near record levels.
"From my perspective, the only way the mega-cap tech companies can continue to deliver market-beating earnings growth is if their customers realize a return on investment from buying their goods and services," writes Temple in his 2024 midyear outlook.
He adds: "To date, we have seen strong growth in earnings from the top six stocks but no meaningful earnings growth from the rest of the S&P 500 stocks in aggregate since the end of 2021 when the market hit its previous peak."
In response, Temple believes that the best approach for investors at this time is to allocate capital away from cash and into riskier assets while identifying those "risky" assets that are less correlated to the most expensive parts of the global equity market (that is, the tech and AI leaders).
Temple thinks those outlets could include emerging markets, Japan, small cap, and infrastructure-related equities. Another option he cites for gaining equity exposure with less downside risk is to consider convertible bonds.
(Terence Gabriel)
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FOR TUESDAY'S EARLIER LIVE MARKETS POSTS:
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BENCHMARK TREASURY YIELD'S HEAD STILL ABOVE THE CLOUD - CLICK HERE
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INVESTOR POSITIONING IN EUROPE TURNS BEARISH - CLICK HERE
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