How AI, Interest Rates And The Election Will Shape The Market In The Second Half Of 2024

[Music] hi IBD I'm Meredith hayon this is IBD explains thanks so much for joining me it is hard to believe 2024 is halfway behind us so let's do a midyear check-in on the stock market joining me to discuss everything from how big themes such as AI to interest rates will impact the market leading up to 2025 is IBD Deputy markets editor David SEO Chung Dave thanks so much for joining me hey Meredith uh great to see you and appreciate uh this time to toh chat about the second half of the Year absolutely so let's Jump Right In overall what's the outlook on the stock market for the next six months well at IBD we actually see it as quite bullish we've had a strong first half and a lot of the the factors that have helped to boost the this the general indexes and leading stocks haven't really changed uh during our talk Meredith we will talk talk about some risks that uh are unique to the second half uh such as the uncertainty regarding the election the possibility of some slowdown in the economy but overall you know the most important aspects of this of this rally uh still look good to me and we'll cover some of them right now let's talk about one of the biggest themes we're seeing in the stock market everything is AI and how is that shaping the market I think it's contri contributed to what's so far right now A 19% year-to dat gain in the NASDAQ Composite right now that's still ahead of the S&P 500 which is up 15% now a few of those AI related companies are helping to boost that large cap index the S&P 500 and it it seems like we are still kind of in the early Innings of discovering the the true market leaders in this area as well as uh the Future Leaders uh that will help Propel this advance and right now obviously chip equip chip equipment uh semiconductors companies that supplied a data center for this dramatic transformation of data centers into what people are calling now going to call AI factories uh is really exciting and that that's important for growth stock investors but also MTH I want to highlight that you know you still have to be choosy in the stock market as an example the Dow Jones Industrial Average uh through Thursday's open was up only 3% and small caps are actually down for the year uh as of Thursday trading the Russell 2000 is down actually 0.5% for the year and that's partly because one you don't have companies like Nvidia and uh broadcom and some other you know chip and software companies that really make a significant impact on something like the Russell 2000 uh the the fact that we're going to you still have relatively High interest rates especially compared to two 2020 uh that poses as a headwind to smaller companies because their cost of capitals is up a lot more so you know our message from IBD is still be selective at to be focused on the leading Industries and sectors um and and also just be be prepared for a little more volatility and AI isn't as we just said up the only game in town there are other in demand industries that are influencing the market Dave right exactly you know we've had a a fairly strong economy for years uh uh after the the economy went over a cliff right so just figuratively during covid in the first half of 2020 well a lot of people still have jobs a lot of people have nice uh U disposal income to spend so you know we've SE seen strength in for instance some of the leading Footwear companies whether it's Deckers uh or or uh more recently a new uh IPO on uh the ticker symbol o n o n that that that stock is uh up sharply from its recent lows uh we're also seeing strength in the uh certain re uh restaurant uh companies that are relatively newer and and have really really robust business models and are growing same store sales uh we're also seeing obviously uh continued strength in the area of the glp related uh weight loss drug Market this seems to be really really exciting Wall Street and we've seen a number of large cap uh companies uh grow uh to that sort of uh you know status where they they could become trillion dollar companies in market value at some point so you know those are just a couple of the sectors that we've noticed that are doing well and we're also highlighting these on a daily basis uh Elsewhere on IBD for instance on IBD live what are opportunities for the rest of 2024 and small cap stocks right now small caps are definitely lagging in 2024 so last year the Russell had a you know a mild gain uh nothing like what the nas NQ did last year the NASDAQ was up 43% the S&P 500 was up 24% last year and as I mentioned before we have double digit nice double- digit gains in those large gap indexes the Russell 2000 uh still is still trying to uh reach all-time highs and that's something that the NASDAQ and S&P have already have done therefore that's why you know at IBD we really stress not so much a a heavily Diversified port portfolio but for those who really want to stretch their outperformance potential versus the market to really focus on what's strong and right now what really is strong is the large caps so the hot topic for investors is interest rates how have perceptions of those these really changing rates changed over the last year and what can we expect to see for the rest of the year well that's an excellent question and let's uh do a little quick history right of what interest interest rates have done uh over the past year and so you know from the spring of 2023 we had uh a big push in the interest rates on the 10year treasury bond from around 3.25% to a peak of 4.99% just one basis point below 5% Meredith which you know kind of is like a psychological uh psychologically important level because that's that the in that that's really uh shows how much the cost of money has gone up since the pandemic you know the Fed was keeping rates so low to prevent bankruptcies and to help the economy keep going and you know we went from zero to to a quarter percent on the FED funds rate and that's the rate that Banks uh borrow uh for overnight cash infusions really really important rate for for the health of the economy we went from 0 to 0.25% to uh now you know five and a quarter to 5.5% you know normally uh that's that's a a big enough arise that it caused a lot of people on Wall Street to think we're going to head into a recession well that that hasn't happened we haven't also hit that all uh that recent multi-year high of 4.99% on the SM on the on the on the tenure treasury uh we're currently around 4.25% which reflects a couple things one that interest rates are at a nice level that institutional investors feel comfortable buying fixed income and uh getting a a a decent real return a return after inflation um and that's also really good uh for stocks too because the the importance of having stocks in in professionals portfolio is to get that little extra kick to the overall return uh and you're you're going to expect more of a return in stocks than you would in bonds um be because you know even at 4 5% that's probably not enough for a lot of professional invest investors to uh to make their customers or their clients happy so all that said I want to also highlight that as a result of the most recent economic data that have shown that the growth in the US economy is starting to show some tapering and maybe a little slowing uh both on the jobs front the manufacturing front and the housing starts front which came out this uh today on Thursday um we you know we believe that uh the FED could be justified um that justified in reducing interest rates sometime this year uh and a lot of people on Wall Street really evidently think that because on the CME fed watch survey of bond Traders uh for the upcoming September 18th meeting on the monetary policy there is now a 64% probability that the FED will cut rates by at least a quarter point so that's you know uh about three months from now and then right after the election two days after the election that we could have a 78% probability of at least one rate cut uh at the November 7th meeting so although this is not a dramatic change in monetary policy we're still going to have relatively higher interest rates uh personally I feel it's at a good level because one it indicates that institutions are still investing in America American assets uh through through the treasury bonds but two they're going to have to look towards stocks to juice up their returns and therefore while you know maybe maybe some people will say we're overbought in the short term for the stock market the very fact as a highlight in the second half Market Outlook story that we published uh a few days ago earnings prospects look good the uh there are Dynamic industries from AI to those in retail uh in the medical Fields uh that are also boosting the animal spirits of the economy uh and the fact that we probably are going to avoid a hard Landing economy all these factors pose as positive positive positive ones uh for the stock market from July to December however one more last Point always keep in mind that you know the election seems to be quite a tossup according to certain uh observers and you know ultimately even if we don't know who will become president once that pretty much becomes certain what that becomes certain a month in month before the election or right around the election Wall Street will breathe a sigh of relief and they actually might uh uh start buying stocks even more in Earnest uh after the election if we find that uh it's a split uh uh situation uh inside the Beltway in other words uh you know if no party takes the ultimate majority in both in Congress and and in the White House that also could be a good boost for stocks okay Dave we'll be watching thanks so much for joining me stay right here on IBD for more I'm Meredith Heyman thanks for watching we'll see you next time

Channel: Investor's Business Daily

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Keywords: investor's business daily, stocks, stock market, investing, investment, investments, invest smarter, investment tips, investment advice, exclusive stock lists, stock list, investing data, stock market research, financial news, business news, business, stock, stock market news, stock news, ibd, trading, stock trading, trade stocks, learn to trade stocks, stock trading advice, stock trading tips, interest rates, presidential election, ai, artificial intelligence, bull market, investor

Id: komejTfGIGQ

Length: 12min 22sec (742 seconds)

Published: Fri Jun 28 2024