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Inside Markets — Growth Momentum

Growth Momentum

July 5, 2024

An apparent loss in US economic growth momentum is taking bond yields lower and driving further rotation into defensive secular growth stocks (mega-cap Tech) at the expense of cyclically exposed equity groups. Equity investors are in a selective ‘bad news is good’ phase for now, but that could change if the loss of momentum accelerates amid still sticky core inflation.

The SPX is extending just beyond our price objective of 5550 in a low attendance/light volume session. The close matters most to market technicians, but we wouldn’t be surprised by higher levels given positive early-July seasonality and cautious near-term equity sentiment. Equity prices move in response to estimate revisions with CQ2 earnings season kicking off later next week. The bottoms-up consensus forecast for ~9% YoY SPX earnings growth in Q2 is a high bar with forward guidance influencing early calendar ’25 estimates. This is the time of year when analysts and PMs begin to focus on out-year estimates. The ‘opening bid’ for out-year earnings estimates tends to start high with sell side industry conferences in September providing management teams an opportunity to lower the bar. In my opinion, this dynamic accounts for much of the poor historical performance during the month of September and early October.

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