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CONUNDRUM- Improving profits & declining GDP 240710

As the economy enters the second half of the year, we’re faced with two opposing trends:

  • Corporate profits are improving.  S&P 500 earnings for the non-Mag 7 have been negative to flat for FIVE consecutive quarters.  (A major reason for my overreliance on SAFE money market funds.)  However, the profit recession is likely over, as 2Q2024 should see the first profit increase since 4Q2022. 
  • GDP is slowing.  The estimate for 2024 is 2.1% compared to last year’s 2.5%.  The economy is slowing, but for now, it’s not falling off a cliff.  The forecast is reasonable, considering the past decade’s average was only 2.3%.

So, while improving profits will likely help buoy up the S&P 493, the broadening hasn’t fully developed.  The equal weight S&P 500 along with the Mid & Small caps are still trading BELOW their 50 day moving average. 

Depending on your perspective, the economy could be half full or half empty.  Personally, I’m continuing to add small, diversified positions to my portfolio.  Today I purchased three stocks:  CIEN, GEHC & GL.  Like the other stocks that I’ve recently purchased, I think these offer favorable growth adjusted valuations.

While the S&P 500 is distorted by the Mag 7 and trading at record highs, under the surface there are many stocks with reasonable valuations.  Currently, 34% of the S&P 500 is trading below its 200 day moving average and 21% are priced more than 20% below their 52 week high.  So many stocks are potentially trading at a discount.

BTW- Happy 10th anniversary to the Wealthsteading Podcast …thanks for LISTENING !!!