What it will take to keep the S&P 500 rally going
The Magnificent Seven stole the show in 2023—leading the rally and pulling the S&P (^GSPC) higher by more than 23%.
This rally could continue, but the other 493 would have to catch up says Evans May Wealth Managing Partner Brooke May. May states “we think there is some opportunity there, as we’ve seen the breadth of the market improve, meaning more names participating, we think that’s going to give the market another leg up.”
May sees “really good deals and values,” including Charles Schwab (SCHW).
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Video Transcript
DIANE KING HALL: Well, the Magnificent Seven have pulled the S&P 500 higher by nearly 25% so far this year, while the rest of the index lags. Our next guest sees the stock market rally continuing into 2024, as long as the other 493 catch up.
We want to bring in Brooke May, Evans May wealth managing partner. Brooke, so thanks so much for joining us this morning. Let's talk about this catch up trade. What's the expectation when you think about the rest of the S&P 500 for 2024.
BROOKE MAY: Yeah, we are very optimistic going into 2024. We think that the S&P could hit 5,200 to 5,400, and that would be about 11% earnings growth from here. Right now, the S&P looks expensive at about 21 times earnings. But if you factor out those seven names, the multiple is much more reasonable, around 17, 18 times.
So we think that there's some opportunity there, and we've seen-- as we've seen the breadth of the market improve, meaning more names participating. We think that that's going to give the market another leg up.
RACHELLE AKUFFO: So, Brooke, in terms of the sectors and the companies that you think have a lot of upside to go. Obviously, Magnificent Seven have been taking all the headlines, but that has left a lot of the S&P 500 out of the conversation. Where do you see the upside?
BROOKE MAY: Yeah. Right now we still like the big tech names. We think that there's good earnings growth there. So we don't feel like you need to completely rotate out of those positions. However, there are some really good deals out there and values.
One of the names we like, for example, is Charles Schwab. Unlike a lot of other companies that are hitting new highs, Schwab is down 17% year to date. They just completed the merger with TD Ameritrade, so there's going to be some cost synergies there.
In addition to that, the fact that we've had an inverted yield curve has really hurt their earnings because interest is a big part of what contributes to their profitability. So as we see the yield curve return to a traditional slope, that will be a little bit of a tailwind for Schwab as well.
