“
”Markets in Focus
Timely analysis of market moves and sectors of opportunity
This is a still narrow market, but it’s no longer just the “Magnificent Seven” versus the other 493 stocks in the S&P 500 Index. Worth noting: 149 companies have outperformed the S&P 500 year to date.
What recession? Last week’s fourth-quarter GDP showed a sizeable acceleration in economic growth in the second half of 2023. So don’t expect the Fed to start cutting interest rates in March.
Things to watch: Earnings. Small caps. Industrials focused on infrastructure, reshoring and defense (especially advanced electronics and software). Emerging markets, including China (but be careful).
Skepticism persists as major U.S. equity indices continue to push all-time highs, but Matt Orton sees reason for optimism about the opportunities of a gradually broadening market.
“I don’t know if the market is as narrow as many people think,” said Orton, CFA, Chief Market Strategist at Raymond James Investment Management. “When you look at earnings season, you’ve had a number of companies be rewarded for exceeding expectations and providing upbeat management commentary because they underperformed the market last year. I get the sense that investors are finally being a little bit more discerning and trying to find some new opportunities. That, to me, is very encouraging.”
Economic data remains quite strong, and while it’s highly likely that it weakens in coming quarters, Orton said the overall backdrop remains positive. Investor sentiment has flipped after being too pessimistic for the past year, and positioning has already followed that change. While this is indeed a narrow market, it’s no longer just the “Magnificent Seven” – the seven mega-cap stocks that dominated returns in 2023 – versus the other 493 stocks in the S&P 500 Index. Rather, Orton said it’s about finding where fundamentals are finally intersecting with expectations. Most of the market was in an earnings recession in 2023, while many tech giants started to see an inflection as they returned to earnings growth. That inflection is starting to happen across other pockets of the market, which is why Orton said he remains optimistic that we likely start to see a gradual broadening over the coming months. There are many companies that have already reported strong earnings results up and down the market capitalization spectrum, serving as a reminder why he has continued to reiterate the importance of being selective. In fact, there are 149 companies that have outperformed the S&P 500 year to date as of Jan. 26, 2024, according to Bloomberg.
So rather than fear periods of consolidation, which seem likely in the near term given the overbought nature of growth stocks and a normalization of expectations for interest rate cuts from the U.S. Federal Reserve (Fed), he said investors should see these periods as opportunities to make changes to portfolios and strategically check some items off their shopping lists.
“All-time highs are not something to fear – especially with a solid economic backdrop,” Orton said. “Instead, new highs should be used to ask whether your asset allocation is set up for success as the character of the bull market inevitably evolves.”
The most immediate catalyst is earnings. This week will be busy with four of the Magnificent Seven reporting results, with those results playing an outsized role in shaping overall index expectations. Six of the seven are in aggregate expected to report year over year earnings growth of 53.7% for the fourth quarter. (The seventh, a leading electric vehicle manufacturer, has underperformed the index year to date.) Excluding these six companies – also known as the “Super Six” – the blended earnings decline for the remaining 494 companies in the S&P 500 would be -10.5%. So there’s clearly a lot riding on their results, but it’s also worth pointing out that the bar is set very low for the rest of the index’s constituents.
The Fed could also inject some volatility into the market as the Federal Open Market Committee (FOMC) wraps up its January meeting on Wednesday. The fall in inflation has surprised the Fed, but the central bank appears to have little appetite for growth to remain consistently above trend. This suggests that a growth scare or inflation undershoot may be necessary for the FOMC to meet the market’s more aggressive expectation of six 25-basis point cuts this year.
One of the problems with the “everything” rally at the end of last year is that many stocks that had no business rallying based on fundamentals were bid up, Orton said. That is being unwound right now, likely pressuring the returns for the S&P 500® Equal Weight Index. Earnings will further lead to dispersion, and results for the 494 stocks outside of this year’s six top performers haven’t been too bad. The blended earnings decline for the S&P 500 currently stands at -1.4%, which is actually substantially ahead of the expectations of -10.5% (though none of the Super Six have reported yet). We’re seeing increasing new highs and lows across sectors in the Russell 3000® Index, which Orton said is encouraging from a breadth perspective. Also, we’re seeing outsized moves for companies that have reported positive results and followed through with upbeat management commentary. This reflects the opportunities that exist across the market of stocks and reinforces the importance in being selective, Orton said.
The continuation of positive economic news also corroborates Orton’s view over the past year that we’re not heading into recession. Last week’s gross domestic product (GDP) report for the fourth quarter showed a sizeable acceleration in economic growth in the second half of 2023, as the economy grew 3.3% quarter over quarter on a seasonally adjusted annual rate in the fourth quarter on the back of a 4.9% pace in the third quarter. The core Personal Consumption Expenditures (PCE) Price Index also came in right at expectations despite this strong growth.
“That said, I still believe the market’s pricing around a March rate cut looks offsides,” Orton said. “More normalization needs to take place.”
The recent easing in financial conditions and signs of economic resilience afford the FOMC some time to judge whether inflation is durably converging to its 2% target. Consequently, Orton expects the Fed to take a slow-moving, cautious approach to reducing rates. A less deep, less rapid cutting cycle seems most likely given the economic backdrop, he said.
The performance of the market this year provides a reminder of why it will be increasingly more difficult to just own the indices and, thus, why selectively matters more and more. There has been a split in the Magnificent Seven: The Super Six are responsible for 75% of the market gains year to date versus 58% for the Magnificent Seven. With a busy earnings calendar for mega-cap stocks this week, we’ll see which ones can keep the upward momentum going. That said, Orton said he would be ready to use any overreactions opportunistically and would pay attention to developments in a few areas.
Position for broadening in small caps. It’s unclear whether small caps corrected enough to fully work off the extremely overbought conditions following the Russell 2000® Index’s best December on record, but we saw a return to outperformance relative to large caps last week, and earnings reports will start to pick up in the coming weeks. If investors are more accepting of the soft landing narrative, we should start to see more life down the market-cap spectrum, Orton said. Small-cap valuations remain attractive, and he expects to start seeing an earnings inflection over the next two quarters that could provide the catalyst for upside. He also said the record amount of cash on the sidelines can benefit small caps in particular. While the amount of cash in money market funds is small relative to the market cap of the S&P 500, it’s meaningfully larger than the market cap of the entire Russell 2000. Cash moving into small caps certainly could provide a real catalyst, and Orton hopes to start to see this if the fundamentals play out as expected. Now that we’re through regional bank earnings, maybe we’ll see optimism start to increase, he said.
Defense and infrastructure/reshoring. Industrials continue to perform well and there have been some big moves across the infrastructure complex as well as in aerospace and defense. Selectivity is critical here, Orton said, as we’ve seen a bifurcation in the results of defense companies. He said he prefers leaning into those that are levered to advanced electronics and software systems as this remains a key investment area going forward globally. Strong fourth-quarter GDP serves as a reminder of the positive economic backdrop, and recent headlines also point toward an acceleration in deploying funds that have been approved for key projects like new semiconductor capacity and other infrastructure development.
The China conundrum and diversifying with emerging markets. Following months of low conviction and lagging equity performance, the announcement of a deep cut to reserves at China’s central bank proved very effective in lifting investor spirits about Chinese equities. In fact, inflows into funds tracking both Asian emerging markets (EM) and China reached their second-highest level since 2000. The intersection of “so bad it’s good” and central bank action led to a 10% boost, but Orton said he is hesitant to chase the rally and would rather “rent” the upside using options than to own it outright. Given that skepticism, he said he would rather get exposure via European materials or luxury goods, two sectors with high exposure to China. He said he still prefers Asia ex-China from a long-term investment standpoint. Stronger national balance sheets, better monetary policy, and reduced reliance on foreign funding should provide tailwinds to most emerging markets and Orton prefers looking at EM ex-China. A weaker U.S. dollar also supports the case to be in emerging markets and Asia.
Money market funds could move the small-cap market
Total market cap comparison, in trillions of dollars, as of 1/24/24
Source: Bloomberg, as of 1/26/2024
Earnings: 108 companies in the S&P 500 report, including four of the top six stocks and several other major companies.
Central banks: Watch for the FOMC’s rate decision Wednesday and the Bank of England’s on Thursday. The summary of opinions from the Bank of Japan might also provide more clues as to its thinking.
Data: Along with Friday’s jobs report, Thursday’s Eurozone Harmonised Index of Consumer Prices will be closely watched after the European Central Bank softened its language on inflation last week.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Definitions
Basis points (bps) are measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.
Blended earnings combine actual results for companies that have reported earnings and estimated results for companies that have yet to report.
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
Conviction represents a market participant’s confidence in particular investments or the likelihood that particular outcomes will take place. High-conviction investments represent what participants consider to be their best bets for performance for a given outlook or period.
Core inflation is measured by the Personal Consumption Expenditures (PCE) excluding Food and Energy, Price Index, also known as the core PCE price index, is a measure of the prices that U.S. consumers pay for goods and services, not including two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, measures inflation trends and is watched closely by the U.S. Federal Reserve as it conducts monetary policy.
Dispersion refers to the range of outcomes in different areas of a financial market or to the potential outcomes of investments based on historical volatility or returns.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
The Eurozone Harmonised Index of Consumer Prices is a composite measure of inflation in the Eurozone based on changes in prices paid by consumers in the European Union for items in a basket of common goods. The index tracks the prices of goods such as coffee, tobacco, meat, fruit, household appliances, cars, pharmaceuticals, electricity, clothing, and many other widely used products.
The Federal Open Market Committee (FOMC) consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
Fund flow is the net of all cash inflows and outflows into and out of a particular financial asset, sector, or index. It typically is measured on a quarterly or monthly basis. Investors and others look at the direction of fund flows for indications about the health of specific securities and sectors or the overall market.
Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.
Investor positioning refers to assessments of whether professional investors are, on the whole, bullish or bearing on a particular security, industry, sector, market capitalization or other area of the market, as reflected by the extent to which they are invested in the area of the market in question.
The payroll report, officially known as the Employment Situation Summary, is a monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.
The “Magnificent Seven” refers to the seven largest stocks by market capitalization in the S&P 500 Index, as of Dec. 29, 2023. Collectively they made up more than 25% of the market capitalization of the entire index. They are Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
Market of stocks is a term market participants use when referring to the diversity of technical or other characteristics that may exist at any given time within the overall stock market. For example, the stock market as a whole may rise or fall on the fortunes of a small number of very large and thus very influential stocks. But within the broader market of stocks, there can be many companies with performance, risk, or opportunities that vary significantly from what market participants may find at the index level.
Mega-cap stocks are the largest publicly traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200
billion.
An option is a financial instrument based on the value of underlying securities such as stocks. An options contract offers its buyers the opportunity to buy or sell — depending on the type of contract they hold — the underlying asset.
Overbought is a term used to describe a security or group of securities believed to be trading at a level above its or their intrinsic or fair value.
Reshoring describes the effort to bring manufacturing and other services back to the United States from overseas operations.
A soft landing is a cyclical slowdown in economic growth that avoids a recession.
The “Super Six” refers to a group of mega-cap stocks that have dominated S&P 500 returns in early 2024, as of Jan. 26, 2024. They are Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft and NVIDIA. Unlike the so-called Magnificent Seven, the Super Six excludes Tesla, which has not performed as well so far in 2024.
Indices
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The S&P 500® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
The Russell 3000® Index measures the performance of the 3,000 largest U.S.-traded stocks, which represent about 96% of the total market capitalization of all U.S. incorporated equity securities.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-491484 Exp. 5/29/2024
The broader “market of stocks” outperformed for the last six weeks of 2023, but – not surprisingly – has taken a bit of breather as the cap-weighted and megacap-dominated S&P 500 Index has surged in January.
Don’t be seduced into thinking 2024 will be a repeat of last year when only a handful of companies dominated. Watch for select opportunities in a broadening market fueled by improving corporate fundamentals and the redeployment of cash.
Areas to consider: Small caps. Fixed income. Emerging markets (but not China).
Not much could keep the market down last week with the S&P 500 Index hitting an all-time high more than two years in the making.
But market leadership was extremely narrow, noted Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management. That, he said, raises an important question and highlights the potential benefits of looking for rotation opportunities to help balance portfolios and manage risk.
A key driver last week was enthusiasm over artificial intelligence (AI), which was on full display at The World Economic Forum in Davos, Switzerland. It jumped even more (if possible) after a leading semiconductor manufacturer in Taiwan reported strong earnings and booming demand for high-end chips used in AI. Not even rising Treasury yields and some normalization of the expectations for an interest rate cut in March could hold down the technology sector, which has continued to lead the market higher.
“The key question now is will the rest of the market follow?” Orton said. “I continue to believe that it can – and must – start to outperform, but we’re only three weeks into the new year.”
The broader market of stocks outperformed for the last month and a half of 2023, so Orton said it’s not surprising to see it taking a breather relative to the cap-weighted indices so far in January.
The concentration of returns this month also is quite extreme, with NVIDIA contributing more than 40% of the S&P 500’s year-to- date return through Jan. 19 (add in Microsoft and that goes to nearly 70%).
“That said, it’s way too early to throw in the towel and declare defeat for the average stock,” he said. “We’ve had some good news on the AI front that has helped propel many tech names higher, and I would note that biopharma enthusiasm has propelled healthcare to be one of the top-performing sectors so far this year.”
Extreme concentration
Top 5 stocks contributed more than 90% of S&P 500 returns in January
Source: Bloomberg, data as of 12/29/23 through 1/19/24.
Otherwise, for the broader market, we’ve really only seen earnings results from the financials, which haven’t been very inspiring (nor did Orton expect them to be). Things start to pick up this week with a number of consumer bellwethers reporting as well as many large aerospace and defense companies.
“Overall, I continue to expect some choppiness in the short term, but I remain optimistic and believe there are plenty of opportunities across the broader market,” he said. “I favor using any downside tests of this rally opportunistically. Don’t be seduced into thinking 2024 will be a repeat of last year where only a handful of companies dominate.”
Meanwhile, the soft landing narrative is alive and well, enabling markets to push to all-time highs while simultaneously paring Fed rate-cut expectations. Orton said the belief in a soft landing should also be reflected in a reversal of the relationship between market breadth and interest rates. For most of last year, there was an inverse relationship between the two, and it was the major decline in rates at the end of last year that coincided with a meaningful increase in market breadth.
“Fundamentals, however, are ultimately more important,” he said. “With strong economic data coupled with a near-consensus belief in a soft landing for the economy, we should be able to see the average stock take off without the support of falling rates.”
Fixed income markets are priced for strength across corporate America: The difference between investment-grade bonds and the equivalent Treasury yield was just 0.99% at the end of 2023, which was only the seventh time since 1998 the spread was below 1% at the start of a year.
The Financial Times noted that U.S. companies have sold a record $150 billion of debt since the start of the year, marking the busiest opening to the year for more than three decades.1 This should be a reason for optimism on the broader market, Orton said. As the earnings reacceleration starts to take shape outside of technology and communication services, he said this should provide a boost to a broader group of sectors and industries. The relationship that existed last year was anomalous for the broader market as well as for the higher-duration “Magnificent 7” – the seven largest stocks in the S&P 500 by market capitalization – which were largely shielded from rising rates due to a turnaround in their earnings profiles.
Also, don’t ignore the massive stockpile of cash that is still sitting on the sidelines, Orton said. Despite current expectations for a soft landing and a U.S. Federal Reserve (Fed) easing cycle, cash levels have barely budged since mid-2023. Orton said he continues to believe that retail cash will not only make its way into fixed income but also into equities as retirees reach for yield as interest rates fall. While there will certainly be some elements of FOMO – “fear of missing out” – chasing the gains across the AI complex, much of this cash is more valuation-sensitive and held by long-term investors, which Orton said could provide support for some contrarian trades in higher-quality parts of the market.
“Last year was all about a narrow subset of companies, but as the market likely broadens, I believe selectivity will be crucial to success,” Orton said. “Focus on where there are inflections in earnings and where the reacceleration in earnings per share growth will continue throughout 2024 and beyond.”
Orton said he continues to have a favorable market outlook even if some choppiness in the coming weeks is expected. It has been more than 450 trading days since the last high on the S&P 500, and, absent a challenging macroeconomic backdrop, he expects the forward returns to look quite positive. The question is, Where to allocate going forward?
“If you believe, as I do, that we’ll see a broadening of the equity market, there are a few places to look,” he said. “Let me be clear in saying that leaning into a broadening market doesn’t mean eschewing what has been working: I actually believe in the durability of the AI theme.”
There are also strong secular growth drivers moving many cybersecurity names that have performed very well to start the year. But he said looking for rotation opportunities could help to balance portfolios and manage risk. So, he suggests thinking about:
Using downside opportunistically in small caps. One of the most interesting areas right now is small caps, Orton said. The Russell 2000® Index is still getting through a hangover from its best December on record, but if investors are more accepting of the soft landing narrative, we should start to see more life down the market cap spectrum. Flows are back to being terrible and it won’t take much to get the space to start to move, he said. With attractive valuations, Orton said he would expect earnings season to provide some upward momentum. Now that we’re largely through regional bank earnings, which he had expected to weigh on the space, maybe optimism will start to increase.
Opportunities in fixed income. Fed officials expect to cut rates this year, but do not seem itching to get that started in the first quarter. We finally saw some normalization in rate cut expectations last week, and this week we get an update on the Fed’s preferred price measure as well as fourth-quarter gross domestic product (GDP). While there is still likely some normalization that needs to take place, Orton said it makes sense to start buying dips on the U.S. bond market to position for the eventual Fed rate cutting cycle and to lock in favorable yields.
Emerging markets. While the major U.S. indices are all at record highs, Chinese equities are at record lows. “What a contrast,” Orton said. “I have been quite vocal about avoiding China and continue to see risks, so be mindful of catching a falling knife.” Stronger national balance sheets, better monetary policy, and reduced reliance on foreign funding could provide tailwinds to most emerging markets (EM), said Orton, who prefers looking at EM ex-China. A weaker U.S. dollar also supports the case to be in EM and Asia.
Often, Orton noted, investors see a market hitting an all-time high, get scared, and wonder if they should head to the sidelines for a while.
“I believe the answer is definitely not, and that plays out in the data,” he said. “If you look over the past 60 years, the 1-, 2- and 3-year periods following all-new, all-time highs in the S&P 500, returns have averaged 12%, 23% and 39%, respectively. So just because the market is sitting at a high does not mean it needs to go down.”
It’ll be a busy week between central banks, economic updates, and earnings. The European Central Bank and Bank of Japan are among major central banks set to meet, while major data releases include corporate manufacturing outlooks in Europe and the United States as well as the preliminary fourth-quarter GDP reading. Federal Reserve members are in a blackout period ahead of the next Federal Open Market Committee meeting on Jan. 30-31, so the focus will largely be on data rather than Fed officials’ comments. On the earnings front, global chip industry heavyweights will report earnings, along with major domestic companies in consumer discretionary, communications services, and healthcare.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Definitions
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
A consensus estimate is a forecast of a public company’s projected earnings, the results of a particular industry, sector, geography, asset class, or other category, or the expected findings of a macroeconomic report based on the combined estimates of analysts and other market observers that track the stock or data in question.
Contrarian investing is term used to describe the decisions of investors who intentionally go against prevailing market trends, buying when others sell, and selling when others buy.
A credit spread is the difference in yield between a U.S. Treasury bond and another debt security with the same maturity but different credit quality. Also referred to as “bond spreads” or “default spreads,” credit spreads are measured in basis points, with a 1% difference in yield equaling a spread of 100 basis points. Credit spreads reflect the risk of the debt security being compared with the Treasury bond, which is considered to be risk-free. Higher quality securities have a lower chance of the issuer defaulting. Lower quality securities have a higher chance of the issuer defaulting.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
Equity duration is the cash-flow weighted average time at which investors can expect to receive the cash flows from their investment in a company’s stock. Long-duration stocks include fast-growing technology companies, including those that may not pay any dividends in their early years, while short-duration stocks tend to be more mature companies with higher ratios to dividend to price.
A falling knife is a saying used in investing to describe a rapid drop in the price or value of a security or area of the market. The admonition against trying to catch a falling knife is a way of saying that an investor should wait for a price to bottom before buying something that could either rebound or lose all of its value if, for example, the company issuing the security goes into bankruptcy.
The Federal Open Market Committee (FOMC) consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its longrun goals of price stability and sustainable economic growth. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.
Fund flow is the net of all cash inflows and outflows into and out of a particular financial asset, sector, or index. It typically is measured on a quarterly or monthly basis. Investors and others look at the direction of fund flows for indications about the health of specific securities and sectors or the overall market.
Investment-grade refers to fixed-income securities rated BBB or better by Standard & Poor’s or Baa or better by Moody’s.
The Magnificent 7 refers to the seven largest stocks by market capitalization in the S&P 500 Index, as of Dec. 29, 2023. Collectively they made up more than 25% of the market capitalization of the entire index. They are Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
Market of stocks is a term market participants use when referring to the diversity of technical or other characteristics that may exist at any given time within the overall stock market. For example, the stock market as a whole may rise or fall on the fortunes of a small number of very large and thus very influential stocks. But within the broader market of stocks, there can be many companies with performance, risk, or opportunities that vary significantly from what market participants may find at the index level.
Mega-cap stocks are the largest publicly traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200 billion.
Rotation describes the movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.
Secular stocks are characterized by having consistent earnings over the long term constant regardless of other trends in the market. Secular companies often have a primary business related to consumer staples most households consistently use whether the larger economy is good or bad.
A soft landing is a cyclical slowdown in economic growth that avoids a recession. A hard landing is a significant economic slowdown or downturn, that could include a recession, following a cycle of rapid growth.
The World Economic Forum held its 2024 annual meeting on Jan. 15-19 in Davos, Switzerland, with events organized around the theme of “Rebuilding Trust.” The forum was established in 1971 as an independent not-for-profit foundation, is headquartered in Geneva, Switzerland. Its institutional culture and activities are based on the stakeholder theory, which asserts that an organization is accountable to all parts of society.
Indices
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-488172 Exp. 5/22/2024
The market's priced-in 80% probability of a Fed interest rate cut in March is probably too aggressive, especially in light of recent comments from several Fed officials.
The current and very rare divergence between rate volatility and equity volatility bears close watching. It's not yet clear how this gets resolved, but there are at least two ways that a resolution could create market-moving opportunity.
Areas to consider: Contrarian plays in healthcare, energy and dividend-growing stocks. Select small caps. Industrials with exposure to reshoring, infrastructure and defense themes. India in emerging markets and Japan in developed markets.
Earnings season kicked off last week, but you wouldn't really know it with all eyes still fixed on the U.S. Federal Reserve (Fed), and particularly on the timing of its first interest rate cut.
“I would argue that the tapestry of economic data still paints a somewhat mixed picture on the inflation front, but markets seem convinced about an upcoming rate cut,” said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management. Consequently, Orton continues to favor not chasing the market higher but instead using any downside opportunistically with an eye on higher-quality, more undervalued areas with strong fundamentals.
Inflation is absolutely coming down — core Personal Consumption Expenditures (PCE) Price Index inflation is now near the Fed's target on a 3-month and 6-month annualized basis — but Orton questions whether sticky components like wages will allow it to remain sustainably at or below target. And is there a benefit for the Fed to cave to the market and possibly cut rates prematurely in March?
“These are important questions that I'm sure the Fed is thinking about,” Orton said, “and with heightened geopolitical tensions and a resilient consumer fueled by a still tight labor market, I'm not so sure about that 80% probability of a cut in March. I think this is too aggressive and, I remain cautious in the near term given the risks to seeing some normalization in expectations.”
Pay attention, Orton said, to Fed Governor Christopher Waller's speech this week at the Brookings Institution: Any pushback against more imminent rate cuts would be notable and would push out market rate cut projections. But outside of the endless Fed speculation, Orton said investors really should focus on earnings, which accelerate this week with a large number of regional banks reporting. While he expects the recent choppiness to continue in the near term, he also still expects markets to push higher longer-term as they work through the overbought conditions and stretched sentiment that marked the start of 2024. With more than $1 trillion that moved into money market funds last year,1 Orton said he expects there to be buyers on more meaningful pullbacks with investors looking to bring money back into the market as short-term rates come down. The key to success, he said, will be selectivity and positioning for a broadening of the market.
Recent comments from Fed officials are one reason that Orton believes the market places too much confidence in a March rate cut:
While we cannot put too much emphasis on the Consumer Price Index (CPI), Orton said it's important to note that Federal Reserve Bank of Cleveland President Loretta Mester said after the CPI report that the job is not done yet. Mester, a 2024 Federal Open Market Committee (FOMC) voter until her retirement in June, also said March is probably “too early” for a cut, maintaining the theme of Fed officials who have pushed back since the December FOMC meeting against the notion of a nearterm rate cut.
In a similar vein, Federal Reserve Bank of Richmond President Tom Barkin (a moderate hawk and a FOMC voter) said he would have more confidence the Fed is making progress toward its target if improvement in inflation was broader.
Likewise, Federal Reserve Bank of Chicago President Austan Goolsbee (a resolute dove and non-voter) noted he would need to see more data before rate cuts commence.
Consequently, all eyes will be on Waller this week since his previous comments did much to ignite the market’s November reach for duration.
With so much focus on rising expectations for a rate cut in March, Orton pointed out a significant disconnect that he believes bears watching: the divergence between rate volatility and equity volatility. Rate volatility remains unusually elevated while equity volatility has been subdued for quite some time. 2023 was one of the most volatile years on record for moves in the U.S. Treasury 10-year yield, yet there was only one day where the S&P 500 Index was up more than 2% and only one where it was down more than 2%. Consequently, the ratio of the ICE BofA MOVE Index to the Chicago Board Options Exchange (CBOE) Volatility Index, or VIX, remains near multi-decade highs.
“How and when does this normalize?” Orton said. “I don't know, but I don’t think it will be entirely driven by rate volatility moving lower. If we do get some larger moves in the equity complex, I believe that increases dispersion and the opportunity for generating alpha via stock selection. And if rate volatility does normalize, then I think that helps on the margin to bring in some of the more than $5.8 trillion of assets that was in short-term money market funds as of the end of 2023.”1
With earnings season ramping up, there will be plenty of opportunities to see who is thriving in the environment and who is not able to maintain topline growth or margins.
Unfortunately, Orton said, many parts of the market have run hard into their earnings reports. Last week, for example, banks and homebuilders couldn't maintain upward price momentum even with pretty positive management commentary and results that exceeded estimates on the top and bottom lines.
“This is why I have been adamant in advocating for not chasing the market higher and using downside opportunistically to rotate gains and/or cash into higher-quality, more undervalued parts of the market where fundamentals are strong,” he said. This week is heavy on financials, and Orton said he would pay close attention to whether banks can keep up recent momentum and whether there is positive commentary around an inflection in mergers and acquisition (M&A) activity.
“I actually prefer banks with more exposure to M&A right now,” he said. “This will be important to whether the market stalls more.”
Orton's playbook to start 2024 includes:
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Consider rotating towards:
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Consider fading or rotating away from:
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This week brings some important economic reports — including retail sales and the University of Michigan Index of Consumer Sentiment — though Orton said none are likely to have a meaningful impact on Fed rate cut expectations.
Waller's speech will be important as it's one of the last comments we'll receive before the FOMC blackout period starts on Saturday in advance of the January Fed meeting.
Earnings, particularly from financials, should also be in focus. Next week things really accelerate with reports from more than a third of S&P 500 industrials and information technology companies by market capitalization.
1 Source: Bloomberg, Investment Company Institute (ICI), as of 12/31/2023.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Definitions
Alpha is a measure of the difference between a manager’s actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the manager has performed better than its beta would predict. A negative alpha indicates the manager performed worse than expected based on its level of risk. Thus it is possible for a manager to outperform an index and still have a negative alpha. In general, however, the higher the alpha the better.
Annualized estimates represent short-term calculations or rates that have been converted into annual rates.
Beta is a measure of a manager’s sensitivity to market movements. In general, the larger the beta, the more volatile the historical performance. Beta compares the manager’s excess return over Treasury bills to the benchmark’s excess return over Treasury bills. By definition the beta of the index is 1.00. A beta of 1.10 shows that a manager has performed 10% better than its benchmark in up markets and 10% worse in down markets. Conversely, a beta of 0.85 indicates that the manager is expected to perform 15% worse than the market’s excess return during up markets and 15% better during down markets.
The U.S. Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 households and 22,000 retailers.
Contrarian investing is term used to describe the decisions of investors who intentionally go against prevailing market trends, buying when others sell, and selling when others buy.
Core inflation is measured by the Personal Consumption Expenditures (PCE) excluding Food and Energy, Price Index, also known as the core PCE price index, is a measure of the prices that U.S. consumers pay for goods and services, not including two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, measures inflation trends and is watched closely by the U.S. Federal Reserve as it conducts monetary policy.
Dispersion refers to the range of outcomes in different areas of a financial market or to the potential outcomes of investments based on historical volatility or returns.
Dividend payers are the companies that distribute a portion of their profits to shareholders in the form of a dividend. Dividend growers are companies that work to grow their dividends consistently over time.
Equity duration is the cash-flow weighted average time at which investors can expect to receive the cash flows from their investment in a company’s stock. Long-duration stocks include fast-growing technology companies, including those that may not pay any dividends in their early years, while short-duration stocks tend to be more mature companies with higher ratios to dividend to price.
Fade describes an investment strategy of trading against a prevailing trend in the market.
The Federal Open Market Committee (FOMC) consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its longrun goals of price stability and sustainable economic growth. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.
Hawkish, dovish, and centrist are terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
The ICE BofA MOVE Index is a measure of U.S. interest rate volatility that tracks the movement in U.S. Treasury yield volatility implied by current prices of one-month over-the-counter options on 2-year, 5-year, 10-year and 30-year Treasuries.
An option is a financial instrument based on the value of underlying securities such as stocks. An options contract offers its buyers the opportunity to buy or sell — depending on the type of contract they hold — the underlying asset.
Overbought is a term used to describe a security or group of securities believed to be trading at a level above its or their intrinsic or fair value.
Reshoring describes the effort to bring manufacturing and other services back to the United States from overseas operations.
Rotation describes the movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.
The University of Michigan Index of Consumer Sentiment is based on monthly telephone surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.
The VIX — officially known as the Chicago Board Options Exchange (CBOE) Volatility Index — is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors’ sentiments.
Indices
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
M-483574 Exp. 5/16/2024
Watch this week’s Consumer Price Index, where an upside surprise could lead investors to push back expectations for interest rate cuts and fuel continued volatility.
Expect last week’s choppiness to persist with the potential for additional downside in broader indices, especially if mega-cap stocks can’t find their footing.
Areas to consider: Healthcare, industrials, dividend growers, small caps, and emerging markets (but still not China).
This week sets the stage for a continued bumpy ride and once again underscores the importance of being selective in this market environment, said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management.
“We went into last week expecting some weakness given the incredible rally over the past two months,” he said. The market has needed some consolidation to reset stretched sentiment and extended upside momentum, and Orton said it’s quite likely we see more volatility over the next few weeks as more economic data comes in and earnings season kicks off in earnest.
“The good news is that the underlying fundamental narrative that set the rally in motion — the increasing likelihood of a soft landing — remains in place,” he said.
Recent data, however, calls into question the extreme increase in expectations for interest rate cuts that propelled the “everything” rally through December. The market is still pricing in six rate cuts in 2024, the first of which is expected to take place in March with a 70% probability. Given the current rate cut expectations, an upside surprise in this week’s Consumer Price Index (CPI) could lead investors to push back expectations, which likely would contribute to continued volatility.
On the flip side, Orton said, a softer number probably wouldn’t do too much to shift rate cut pricing given underlying economic strength: The Federal Reserve Bank of Atlanta’s GDPNow™ estimate for fourth-quarter 2023 gross domestic product (GDP) is tracking at 2.5% after a blockbuster 5.0% in the third quarter. Earnings season also kicks off in earnest later this week with the big banks, and a more positive read on the consumer could also lead to some rate-cut repricing. Ultimately, a solid economic backdrop coupled with rate cuts due to falling inflation should be positive for the market, and Orton said he continues to be optimistic for 2024.
“That said, I believe investors should expect the choppiness of last week to persist over the coming weeks with the potential for additional downside in the broader indices, especially if the mega-caps can’t find their footing,” he said.
“This is why I continue to advocate for not chasing the market and for being opportunistic with downside,” he added. “The average stock continues to make a comeback relative to the market, so selectivity remains critical in 2024, but I still believe there are plenty of opportunities. Look for higher-quality companies to get a boost from earning season. Also, areas like healthcare are finally starting to outperform. Finally, I also still favor small-caps and industrials and would use further weakness to add exposure.”
First week hangover is a healthy consolidation
Source: Bloomberg, as of 1/5/24
It’s worth recalling that the stock market and the market of stocks are quite different, Orton said, with the broader indices such as the S&P 500 Index no longer representing the average company. Last year’s massive index gains largely accrued to a small handful of mega-cap companies or those associated with the fervor over artificial intelligence or GLP-1 weight-loss drugs that dominated for most of 2023.
“I have long said that for the rally to be sustainable over the longer term, we need to see market breadth increase,” Orton said, “and that is exactly what has been happening over the past month or so.”
The market of stocks is making a comeback with a small-cap surge as the Russell 2000® Index posted its best December on record. Even last week this outperformance continued with sectors like healthcare, financials and energy leading. However, Orton said we cannot have a collapse at the top, either. The single largest stock in the S&P 500 Index was down more than 6% last week and broke below its 50-day moving average. That’s not a good sign considering the impact it has both on the major indices and investor sentiment.
“We’ll need to see some stabilization before gaining confidence that any period of consolidation is nearing completion,” Orton said. Given how far the market has run, there is a high bar in place for companies to beat expectations and reaffirm or raise guidance. But he said there is also the chance for many of the high-quality businesses in the broader market of stocks to break out and build on the recent positive momentum and for investors to reallocate capital and better diversify their portfolios.
It will be important to separate macroeconomic noise from company-specific fundamentals in the coming weeks as earnings season kicks off. The estimated fourth-quarter earnings growth rate for the S&P 500 is expected to be +1.6% (as of 12/31/23). Given the usual analysts’ trend of cutting estimates throughout the quarter, Orton said it’s likely we see another good quarter of growth. It also will be important to follow the net profit margin, which is expected to be 11.0%, down from the strong 12.2% reported last quarter.
Financials will be in focus over the next two weeks, as more than 70% of the S&P 500 companies scheduled to report will be from this sector. Orton said he expects to see solid results from insurance and financial services companies, while it will likely be more of a mixed bag for the rest. With some of the largest banks reporting on Friday, he suspects investors will pay the most attention to the impact of the sharp decline in rates, any deterioration in credit quality, and comments around the state of their consumers. We’ve seen an increase in biotech deals recently, so any updates on the state of mergers and acquisitions (M&A) activity also should be followed closely.
Also, don’t forget there is nearly $6 trillion still sitting in money market funds, with more than $1.2 trillion having moved in just the last year. This money is going to need to find a new home as rates inevitably come down, especially at the front end of the curve, and Orton expects this capital to be more valuation-sensitive as it will need to diversify investors’ alreadyconcentrated equity portfolios. We’ve seen strong performance in beaten-down sectors like financials and real estate over the past month as some money has flowed into equities, and he would expect that this trend can continue, especially if economic data doesn’t turn south and earnings hold up.
“There’s plenty of very fair valuations where I think earnings season is going to provide a reminder for investors that there’s really good businesses that are growing and are able to preserve their margins even though inflation is falling, and that’s where I think capital is going to move,” he said. “The money that has come back over the past few weeks has been finding a home outside of information technology and consumer discretionary. I think that trend can continue and that can be a very strong tailwind.”
Orton said he expects plenty of opportunities for investors in 2024, but the key will be selectivity and ensuring proper diversification. His favored parts of the market include:
Contrarian opportunities in healthcare and dividend growers. Healthcare looks attractive given a change in momentum and the sector’s defensive growth characteristics, he said.
Biotechnology already has seen a nice jump with lower rates and an increase in M&A activity by large pharmaceutical companies, but we’re also seeing a bounce in other industries.
Health maintenance organizations held up well last week and have posted strong earnings numbers over the past year, despite not being rewarded for it. We hear from a major health insurer on Friday, which could be a catalyst to see the recent trend continue.
We’ve also seen a sharp reversal in the GLP-1 destruction that took place in medical device companies, and there are some strong growth trends that can support a further rally if earnings come in better than expected.
Small caps. Use downside opportunistically. It’s no surprise to see small caps taking a breather after posting the best December on record. And even after its remarkable rally, the Russell 2000 remains more than 20% below its 2021 high. Small caps have lagged large caps for over a decade, leading to one of the most significant valuation discrepancies on record. While the initial rally has benefitted many of the lowest-quality names, this is to be expected, and Orton is watching for the focus to return to fundamentals and growth outlooks as we head into earnings season. “I wouldn’t be surprised to see more short-term downside, but as the market resets and investors assess their asset allocations, there is certainly scope to see meaningful upside from here,” he said.
Emerging markets — but don’t be seduced by value in China. Stronger national balance sheets, better monetary policy, and reduced reliance on foreign funding should provide tailwinds to the emerging markets (EM) complex, but issues in countries like China still present challenges. Orton has seen a growing number of contrarian calls on China, and while he can certainly see a short-term contrarian move, there are long-term issues. Emerging markets ex-China have seen improved market breadth with strength in Latin America and Asia with growth reaccelerating and supply chain diversification benefitting these markets. A weaker U.S. dollar also supports the case to be in EM and Asia. India remains attractive after two years of strong equity performance, Orton said, and economic growth momentum can continue, while improving earnings growth and margins across sectors can lead to further equity upside in 2024.
Taking profits in some trades. There has been a huge run in some parts of the market where Orton believes it tactically makes sense to take some profits, including homebuilders, travel- and leisure-related companies (including airlines), and retailers. In many cases, he still likes many of the best-in-class companies in the space, but often these stocks are priced for perfection and there are better opportunities to deploy capital elsewhere. Similarly, in fixed income, higher-quality credit has been on a tear, and Orton said he would tactically reduce positioning and be ready to reload should we see credit spreads widen.
Expect a busy week with earnings season kicking off, investor conferences, and some important economic data releases:
The biggest release on the economic calendar will be the CPI report on Thursday, which carries asymmetric risks should there be an upside surprise. We also get an update on consumer credit, the international trade balance, and the Producer Price Index.
Government bond auctions are scheduled from Germany and the U.K. to Japan and the United States.
The annual JPMorgan Healthcare Conference and the Consumer Technology Association’s CES® Conference also take place this week. Both could lead to moves in their respective sectors.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Definitions
Asymmetric risk describes a risk posed when the gain (or loss) that could result from the movement of an underlying asset or metric in one direction is significantly different from the loss (or gain) that would take place from a move in the other direction.
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
Consolidation is a term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.
The U.S. Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 households and 22,000 retailers.
A credit spread is the difference in yield between a U.S. Treasury bond and another debt security with the same maturity but different credit quality. Also referred to as “bond spreads” or “default spreads,” credit spreads are measured in basis points, with a 1% difference in yield equaling a spread of 100 basis points. Credit spreads reflect the risk of the debt security being compared with the Treasury bond, which is considered to be risk-free. Higher quality securities have a lower chance of the issuer defaulting. Lower quality securities have a higher chance of the issuer defaulting.
Defensive stocks provide consistent dividends and stable earnings regardless of whether the overall stock market is rising or falling. Companies with shares considered to be defensive tend to have a constant demand for their products or services and thus their operations are more stable during different phases of the business cycle.
Dividend payers are the companies that distribute a portion of their profits to shareholders in the form of a dividend. Dividend growers are companies that work to grow their dividends consistently over time.
GDPNow™ is model estimate for real gross domestic product (GDP) growth (seasonally adjusted annual rate). It is produced by the Federal Reserve Bank of Atlanta, but it is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow. The estimate is based solely on the mathematical results of the model.
Glucagon-like peptide 1 (GLP-1) agonists comprise a class of type 2 diabetes drugs that improve blood sugar control and may also lead to weight loss. The drugs mimic the action of a hormone called glucagon-like peptide 1 by stimulating the body to produce more insulin when blood sugar levels start to rise after someone eats. The additional insulin helps lower blood sugar levels, which helps in controlling type 2 diabetes. How GLP-1 agonists lead to weight loss is less clear.
Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.
Market of stocks is a term market participants use when referring to the diversity of technical or other characteristics that may exist at any given time within the overall stock market. For example, the stock market as a whole may rise or fall on the fortunes of a small number of very large and thus very influential stocks. But within the broader market of stocks, there can be many companies with performance, risk, or opportunities that vary significantly from what market participants may find at the index level.
Mega-cap stocks are the largest publicly traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200 billion.
Momentum investing is a strategy that aims to capitalize on the continuance of an existing market trend. It is a trading strategy in which investors buy securities that are already rising and look to sell them when they look to have peaked. It entails taking long positions on financial instruments with prices trending up and short positions on instruments with prices trending down.
The moving average (MA) is a technical analysis tool that smooths out stock price data by creating a constantly updated average price, often over a specified period of time, such as 15, 30, 50, 100, or 200 days.
A net profit margin, often shortened to net margin, measures how much net income or profit a company generates as a percentage of revenue. It can be expressed as a percentage or a decimal.
The Producer Price Index (PPI), published monthly by the U.S. Bureau of Labor Statistics, measures the average change over time in the selling prices received by domestic producers for their output.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.
Indices
The MSCI EAFE® (Net) Index measures the performance of performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the United States and Canada. The MSCI EAFE® (Net) Index subtracts any foreign taxes applicable to US citizens but not applicable to citizens in the overseas country.
The MSCI Emerging Markets® Index measures the performance of large and mid-cap stocks across 24 emerging markets (EM) countries. EM countries include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates.
The MSCI Emerging Markets ex China Index captures large- and mid-cap representation across 23 of the 24 emerging markets (EM) countries excluding China. With 675 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
The Nasdaq Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
The S&P 500® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-477479 Exp. 5/8/2024
Interest rate expectations may drive short-term volatility: Aggressive market expectations reflect seven possible rate cuts in 2024, which may not be realistic.
$1.2 trillion moved into money market funds in 2023. This capital could come back into the market this year.
Investors can look for contrarian opportunities in previously beaten-down sectors, small-cap companies, and dividend-paying stocks.
The beginning of 2024 has brought a dramatic reversal of the market conditions seen at the start of 2023. Last year began with incredibly oversold conditions, pervasive negative sentiment, and consensus predictions for a hard landing.
In contrast, “we start this year with the market quite extended, sentiment stretched, and a growing chorus of optimists,” said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management. And even amid this optimism, he said, there are opportunities that are not played out yet.
“Just because the market is overbought, that doesn’t mean it needs to go down,” Orton said. “To be sure, we certainly need to be aware of heightened risks of consolidation in the short term, especially as market pricing for rate cuts has become quite aggressive. But the average stock has just started to outperform, and there is quite a lot of room for the market of stocks to rally, especially if earnings surprise to the upside.”
“There is also a significant wall of cash sitting on the sidelines that has just started to work its way back into equity and fixed income markets,” Orton said. “This can provide a powerful catalyst for further upside.” He emphasized that he believes being opportunistic and selective will be critical to success, and he outlined a few key themes that will be important to follow in 2024.
“A big part of the rally into the year’s end was driven by increased expectations for earlier and more rate cuts in 2024,” Orton said. “Higher for longer has given way to lower and sooner, which I can’t help but think is a bit premature.” The December Federal Open Market Committee (FOMC) meeting made it clear that rate cuts are on the horizon, but Orton believes that it’s risky to expect the first rate cut to occur in March. In his view, a May rate cut still seems reasonable.
Orton said that financial conditions are now the easiest that they have been for more than a year. “With economic data remaining in decent shape, I just don’t see the U.S. Federal Reserve (Fed) having a clear reason to be early for rate cuts,” he said. “Perhaps the December minutes will provide a reminder that the market could be ahead of itself.” Orton believes that Fed officials are likely to emphasize that monetary policy is in a good place, or “sufficiently restrictive,” which may not mean they are ready to ease current policies.
“Given how extended the market rally has been across equities and fixed income, I wouldn’t be surprised to see a little bit of a pullback to help normalize market conditions,” Orton said. He described such a move as a healthy reset that could be a good opportunity to put more capital to work in areas of the market where fundamentals are improving or remaining robust. “I continue to advocate for leaning into an expansion of market breadth, particularly in higher-quality industrial, technology, and healthcare companies affected by long-term secular growth trends.”
Orton recommended fading the “dash for trash” that has occurred over the past month, noting that some lower-quality companies face very high burdens at the start of earnings season.
Last two months saw rate expectations change markedly
*U.S. Consumer Price Index (CPI) data for November, released on December 12, measured the month’s change in prices for goods and services. Source: Bloomberg, as of 12/31/2023
Orton said that there were many anomalies in the market in 2023, but the handful of companies that drove broader returns for market indices was one of the most notable. “There were certainly fundamental reasons for the strong performance of the ‘Magnificent 7,’” Orton said, “but investors are finally starting to look beyond the perceived strength of these companies.”
“More than $1.2 trillion moved into money market funds last year alone,” Orton said, “and there is a lot of capital that’s likely to come back into the market.” He expects that this capital will be more sensitive to company valuations and will look to diversify investors’ already concentrated equity portfolios.
Two examples provided by Orton were the strong performance over the past month in the previously beaten-down financials and real estate sectors. “I would expect that this trend can continue, especially if economic data doesn’t turn south and earnings hold up,” he said. Orton likewise believes that the rally in larger money center banks and capital market companies can continue, especially if mergers and acquisitions activity makes a comeback, and he expects that it will in 2024.
“Healthcare is another sector that underperformed significantly last year,” he said. Earnings comparisons with previous years are expected to get easier, and investors may allocate capital to the sector due to its defensive growth characteristics. “We’ve already seen a sharp reversal in the damage done to medical device companies by GLP-1 [glucagon-like peptide 1 hormone] speculation, and there are some strong growth trends that can support a further rally.”
Orton added that the dividend growth space is another part of the market where investors can look for contrarian opportunities. “Dividend-growers had one of their worst years relative to the broader market in multiple decades, and there is scope for this to reverse as investors reallocate some cash into fixed income and higher-yielding equities,” he said. “If market breadth continues to expand in 2024, that could provide a backdrop for higher-quality dividend growth companies to start their rebound relative to the market.” Orton believes that there is a good opportunity for investors to consider buying these businesses at attractive valuations and dividend yields.
Small caps still have room to run: 3-year performance of Russell 2000 Index
Source: Bloomberg, as of 12/31/2023
From its October low through the end of 2023, the Russell 2000® Index rallied more than 20%. “Such a rally is not unprecedented,” Orton said, “and small caps can certainly continue to outperform.” The Russell 2000 remains nearly 20% below its 2021 high, and Orton noted that previous small-cap rallies have exceeded 50%.
“Investor positioning had been grotesquely offsides,” he said, “and even after strong December inflows, positioning still looks incredibly light.”
Despite these gains, Orton said that some consolidation in the short term would be healthy, providing investors with an opportunity to consider adding to positioning if they remain underweight. “Earnings are bottoming and are poised to reaccelerate in 2024,” he said, “and the impact of higher borrowing costs has been overstated.” Orton believes that the balance sheets of small-cap companies are in good shape, with near-record levels of cash.
“Small caps have been lagging large caps for more than a decade, leading to one of the most significant valuation discrepancies in decades,” Orton said. “The initial rally has benefitted many of the lowest-quality names, but this is to be expected.” He expects that investors’ focus will return to fundamentals and outlooks for growth as earnings season begins.
The December FOMC minutes will be released on Wednesday, which should provide insights into participants’ thinking about contemporary economic and market developments. Investors will be carefully looking for a material discussion of rate cuts. The November Job Openings and Labor Turnover Survey (JOLTS), released on Wednesday, and the December jobs report, released on Friday, could both lead to repricing of rate-cut expectations. Updates will also be provided for construction spending and Purchasing Managers’ Index (PMI) data.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Real estate investments can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes, tax laws and interest rates all present potential risks to real estate investments.
There are risks associated with dividend investing, including that dividend-issuing companies may choose not to pay a dividend, may not have the ability to pay, or the dividend may be less than what is anticipated. Dividend-issuing companies are subject to interest rate risk and high dividends can sometimes signal that a company is in distress. Dividends are not guaranteed and must be authorized by the company’s board of directors.
As with all equity investing, there is the risk that an unexpected change in the market or within the company itself may have an adverse effect on its stock. The biggest risk of equity investing is that returns can fluctuate and investors can lose money.
Definitions
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
Consolidation is a term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.
Dovish, hawkish and centrist are terms used to describe the monetary policy preferences of central bankers and others. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.
Fade describes an investment strategy of trading against a prevailing trend in the market.
The Federal Open Market Committee (FOMC) consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the
Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly
scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its longrun goals of price stability and sustainable economic growth. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.
Glucagon-like peptide 1 (GLP-1) agonists comprise a class of type 2 diabetes drugs that improve blood sugar control and may also lead to weight loss. The drugs mimic the action of a hormone called glucagon-like peptide 1 by stimulating the body to produce more insulin when blood sugar levels start to rise after someone eats. The additional insulin helps lower blood sugar levels, which helps in controlling type 2 diabetes. How GLP-1 agonists lead to weight loss is less clear.
A hard landing is a cyclical slowdown in economic growth that ends in a recession.
The Job Openings and Labor Turnover Survey (JOLTS) program produces monthly data on job openings, hires, and separations compiled by the U.S. Bureau of Labor
Statistics.
“Magnificent 7” is a term used to describe the 7 largest companies in the S&P 500 Index, which were responsible for the majority of index gains for the first part of 2023.
Market of stocks is a term market participants use when referring to the diversity of technical or other characteristics that may exist at any given time within the overall stock market. For example, the stock market as a whole may rise or fall on the fortunes of a small number of very large and thus very influential stocks. But within the broader market of stocks, there can be many companies with performance, risk, or opportunities that vary significantly from what market participants may find at the index level.
Overbought is a term used to describe a security or group of securities believed to be trading at a level above its or their intrinsic or fair value.
Oversold is a term used to describe a security or group of securities believed to be trading at a level below its or their intrinsic or fair value.
Overweight describes a portfolio position in an industry sector or some other category that is greater than the corresponding weight level in a benchmark portfolio.
The Purchasing Managers’ Index (PMI) measures the prevailing direction of economic trends in the manufacturing sector. It is created by the Institute for Supply Management (ISM), and consists of an index summarizing whether market conditions as reported in a monthly survey of supply chain managers are expanding, staying the same, or contracting.
Quality investing is a strategy that seeks to invest in companies with low debt, stable earnings, consistent asset growth, and strong corporate governance, as reflected in financial metrics such as ratios of return to equity and debt to equity, as well as to earnings variability.
Underweight describes a portfolio position in an industry sector or some other category that is less than the corresponding weight level in a benchmark portfolio.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Definitions
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The S&P 500® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-476009 Exp. 5/2/2024
