Investment strategist Julie Biel is feeling OMO—“OK missing out”—when it comes to this year’s stock market rally. Biel, the chief market strategist at Kayne Anderson Rudnick, is nervous about earnings and how high prices have gotten in the market. She believes that valuations are stretched and that the rally has been too narrow.
Stocks had a tough week, with the S&P 500 index dropping about 1% and the Dow Jones Industrial Average down nearly 2% following a consumer inflation report that was higher than expected. Despite this, valuations remain high, with the S&P 500 trading for more than 21 times 2024 earnings estimates.
Biel warns that if growth does not surprise to the upside, high multiples could quickly get compressed, leading investors to run for the exits. This is a concern as corporations prepare to report first-quarter earnings and guidance for the rest of the year.
Several big financial companies, including Wells Fargo, Citigroup, and JPMorgan Chase, have already reported mixed results. JPMorgan Chase CEO Jamie Dimon warned of persistent inflationary pressures and an unsettling global landscape.
Analysts are expecting profit growth of just 3.6% for S&P 500 companies in the first quarter, driven largely by the tech and healthcare sectors. However, profits for companies in other cyclical sectors may decline.
Looking ahead, second-quarter profits are forecasted to rise nearly 10%, with earnings for all of 2024 estimated to be up 11% from 2023 levels. However, concerns remain about whether consumers and corporate customers can continue to spend enough to support broader earnings growth.
Overall, strong earnings growth is needed to offset worries about inflation and a less-dovish Federal Reserve. Wall Street will be closely watching earnings reports in the coming weeks to see if companies can deliver the growth needed to support the market.
