The stock market continued its bull run this week, with major indexes hitting fresh all-time highs even as economic data raises worries about a potential recession. While risks remain, some investors see opportunities for gains amid the ongoing rally.
S&P 500 Breaches 4400 in Continued Rally
The S&P 500 crossed the 4400 level this week for the first time ever, capping a nearly uninterrupted rally from the bear market lows of early 2023.^1^ Higher interest rates and inflation fears failed to halt the index’s ascent.
“Investors have shaken off concerns about corporate earnings and the possibility of an economic contraction,” said Michael Hanson, senior vice president at Fisher Investments.^2^ “Optimism about a ‘soft landing’ for the economy is driving stocks higher.”
Other major indexes also pushed into record territory, with the Dow Jones Industrial Average topping 36,000 and the Nasdaq Composite closing above 13,500.^3^
Major Index Year-to-Date Gains
| Index | 2024 Return | All-Time High |
|---|---|---|
| S&P 500 | +8.2% | 4,412 |
| Dow Jones | +7.9% | 36,056 |
| Nasdaq | +12.1% | 13,524 |
The Federal Reserve’s latest interest rate hike of 0.25% on February 1, bringing the federal funds rate to 5%, barely registered in the markets.^4^ Investors increasingly expect the Fed to pause its tightening campaign soon despite still-high inflation.
Bargain Opportunities Remain as Valuations Cool
While the headline indexes trade at lofty levels, many individual stocks look attractively priced after the 2022 decline. Forward price-to-earnings ratios for S&P 500 companies stand at about 17 times expected profits, down from over 21 at the start of 2022.^5^
“There are still deals to be found in this bull market,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors. He highlighted sectors like health care and financials as providing value.^6^
In particular, stocks with steady dividend payouts offer income potential for investors worried about volatility. Verizon Communications (VZ), AbbVie (ABBV), and Prudential Financial (PRU) sport dividend yields above 4% and trade at single-digit forward P/Es.^7^
Other deep value opportunities include Occidental Petroleum (OXY), trading at just 7 times earnings, and banking giant Citigroup (C), at a 9 P/E ratio.^8^
Lingering Fears of a 2024 Recession
While optimism carries stocks higher for now, risks remain that could halt the bull market’s charge. Many economists see the odds of a recession rising in late 2024 or 2025 as higher rates slow activity.^9^
Morgan Stanley’s Michael Wilson, the most prominent Wall Street bear, puts chances of a downturn within the next year at 70%. He points to still-struggling consumer balance sheets and corporations looking to cut costs.^10^
However, other strategists think chains of positive economic data make a soft landing plausible. Strong retail sales, improving manufacturing data, and a still-resilient job market support their case.^11^
Ultimately, uncertainty reigns when it comes to the economic outlook. Investors will closely watch critical upcoming data like fourth quarter GDP figures and January’s jobs report for clues. For now though, the bulls remain firmly in charge as the market rally rolls on.
Outlook Moving Forward
Where stocks head from current levels remains an open question. Valuations look less extreme amid 2022’s pullback, but risks like recession and geopolitical tensions persist.
Most analysts recommend a selective approach focused on value and income opportunities rather than speculative growth names. Dividend payers and commodities stocks should prove defensive if volatility returns.^12^ But optimism around a soft landing could push indexes meaningfully higher in the meantime.
“There’s still money being left on the table here,” said Neil Dutta, head of macroeconomics at Renaissance Macro Research. “You want some exposure on the long side.”^13^
With corporate profits slowing, maintaining a diversified portfolio and holding some cash looks prudent. But the bull market’s momentum shows no signs of letting up yet.
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