Investors eager to buy into the stock market rally may want to hold off, according to an analyst for Canadian investment bank Canaccord Genuity. The S & P 500 and Nasdaq Composite closed at all-time highs on Monday, adding to strong gains in the first half of the year. The tech-heavy Nasdaq ended the first half up 18.1%, while the S & P rose 14.5% and the Dow Jones Industrial Average gained 3.8%. Expectations that the economy and corporate earnings will keep growing plus excitement over artificial intelligence helped fuel the rally. .SPX YTD mountain S & P 500 year to date While history shows S & P 500 gains of 10% to 15% in the first half lead to further upside in the second half, investors should be patient, Canaccord Genuity’s Michael Welch said in a July market strategy report released Monday. “We believe (1) the high bar for Q2 earnings; (2) underperformance of the average stock; and (3) the potential for volatility heading into the Presidential election, may provide a better opportunity for buying on a near-term pullback rather than chasing new highs,” he wrote. The stock market’s strength since last October has been dominated by megacap tech stocks, he pointed out. In fact, the top 10 stocks in the S & P now account for more than 38% of the index’s total capitalization, a new high, Welch said. That led to the largest underperformance on record of the S & P 500 Equal-Weighted Index and the Russell 2000 Index of small-cap stocks in the first half of the year, Welch noted. Meanwhile, the S & P 500 is trading at a rich multiple of 24 times trailing 12-month profits, and expectations are for 10.1% earnings growth in the second quarter, he said.
Don’t chase new highs, wait for a market pullback, advises Canaccord Genuity
Jul 9, 2024
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