HOW LONG CAN THIS RALLY LAST?! | CROUCH CONNECTION | MARCH 2024 "ADV"

HOW LONG CAN THIS RALLY LAST?!

The financial media is in a frenzy over the recent market rally. With the S&P 500 now up over 25% over the past four months, it’s a legitimate question.

Mike Gibbs, former Raymond James Chief Equity Strategist and now Managing Director at Gibbs Capital Management, tried to answer that question in his March 6th Market Guide. He said:

“The market run can continue as long as: 

1.   The economy holds up well, 

2.   Inflation “leeway” does not become more concerning. 

3.   AI enthusiasm doesn’t shake. 

I believe these three items capture the factors driving this market run. Let’s look at each one more carefully.

THE ECONOMY

As Linda Duessel of Federated Hermes said this week, “The consumer will spend if employed, and this morning’s labor report was pretty solid.” And Phil Orlando, also at Federated, titled his February 23rd letter the “Economy of Dreams”, saying: 

“The job market remains strong and consumer spending 

on both goods and services robust.” 

Stephen Auth, Federated Chief Investment Officer, also expressed cautious optimism:

“Over the past month, virtually all the data we and others

track has been coming in solidly positive, belying the undying

call for a recession from our bearish friends.”

He also pointed out that the fourth quarter earnings season came in largely ahead of expectation:

“While expectations coming into the quarter were for

year-over-year growth of 1.6%, as of this morning (2/22/24)

the actual growth will be more like 9%.”

As we have pointed out many times in the past, many things cause the market to rise and fall in the short term, but in the longer term earnings drive individual stocks, and collectively, the market.

INFLATION

Markets watch both the inflation rate and the Fed comments to discern the direction of interest rates which have a huge influence on the stock market…higher inflation and Fed threats of higher interest rates usually cause downward pressure on the stock market. Lower inflation and friendly comments from the Fed normally encourage investors. So far this year, we have had a “Goldilocks” economy and the stock market has responded with the recent rally.

Inflation has been encouraging over the past few months, with the CPI falling to 3.1% in January, down from a high of 8.2% in September 2022, but the Fed remains cautious. Stay tuned. We liked the title we saw in a recent Kiplinger “Investing for Income” newsletter:

“The Fed is the whole story – act accordingly.” 

There is a lot to truth to that line of thought.

ARTIFICIAL INTELLIGENCE

Artificial Intelligence (AI) has powered the market rally for the past few months. Nvidia, the media darling of the artificial intelligence world, is up 75% year-to-date. When Chat GPT came out, people were amazed at how it could write essays or answer complex questions with a response you would think came from a college professor.

Walmart CEO Doug McMillon proudly reported recently on the improvements to their app’s search results:

“The thing we’re most excited about…is the way search has improved, and the

way generative AI helped us really improve a solution-oriented

search experience for customers and members. And it happened pretty quickly.” 

That is just an example of how retailers have embraced AI in an effort to remove friction” from the buying experience. To use the words of Home Depot Senior Executive Vice President Ann-Marie Campbell: 

“In 2023, we made significant progress taking friction out of our online 

order management process. As we continue to create the best

interconnected experience and remove friction from our customers

shopping journey, one of our biggest areas of opportunity is within

our post-sale experience. For the majority of our customers, this process

has largely been unchanged for the last 44 years, and we have

opportunities to improve this experience.”

Walmart is also enthusiastic about improving speed and efficiency in its distribution network. Oracle reports great strides in using AI to improve healthcare outcomes. HCA is testing AI enhanced technology in four of their hospitals to help doctors cut the time they spend filing paperwork, which can take up to four hours a day, and there are many more examples like these.

The corporate world has seen the potential of AI and the many ways it can make them more efficient, improve their customers’ experience and ultimately help them be more profitable. This technology wave is just getting started and could power this market for several years, just as use of the internet powered the 1990’s market.

BOTTOM LINE

We are enthusiastic about market prospects, especially in the world of AI, for the next several years, but don’t be tempted to put all your eggs into the AI basket. Undisciplined investing can work very well for a while, but eventually, a day of reckoning will arrive. Disciplined and diversified portfolio management is very important in markets like these.

You also need to tune out the media. To quote one of the great traders of our time, James “Rev Shark” DePorre:

“In every strong bull market, there is a choir of bears singing about the

disaster that awaits. They may have very compelling arguments, but

it is impossible to time how far a market with strong momentum may

run…no amount of logic will help you time the action effectively.”

And investing legend Peter Lynch of Fidelity Magellan fame said:

“Far more money has been lost by investors preparing for corrections

or trying to anticipate them than has been lost in corrections themselves.”

And I can tell you from personal experience, Peter Lynch is right. We believe we will see some short-term weakness in the market from time to time, but overall expect that we will have a very good year. Call us anytime you would like an update on our views…we enjoy those conversations! 

Sincerely,

Dave Crouch Kim Blackburn Kay O’Connell

Registered Principal Branch Operations Manager Financial Advisor

Financial Advisor

BUFFET QUOTE:

“The only value of stock forecasters is to make fortune-tellers look good. The short-term direction

of stock prices is close to random…time in the market beats market timing every time.”

-WARREN BUFFETT

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Dave Crouch and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.  

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

Raymond James is not affiliated with nor sponsors or endorses any of the aforementioned organizations, publications or individuals. 

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Aspen Grove Asset Management is not a registered broker/dealer and is independent of Raymond James Financial Services.