- The S&P 500 is up 15% in 2024, but Jeffrey Buchbinder thinks the market is “overdue” for a pullback.
- While stocks will likely experience a boost from Q2 earnings, he predicts that a correction could happen in August.
- Below are his 4 investment recommendations for the time being.
The S&P 500 is up 15% to record highs in the first half of 2024. Jeffrey Buchbinder, the chief equity strategist at LPL Financial, doesn’t think the rally is sustainable.
Although stocks will likely continue rising for a while longer this earnings season, Buchbinder advises investors to prepare for a pullback later this year. Here’s why he’s skeptical of the advance, and four investing strategies for the current environment.
A pullback is brewing
The expectations of Wall Street analysts paint a rosy picture for equities as companies begin to report Q2 earnings this month. They're predicting a 9% increase in S&P 500 earnings per share from this time last year, the highest amount of growth out of the previous 10 quarters.
An optimistic earnings outlook doesn't translate directly to sustained market performance, though.
Buchbinder points to the recent decrease in Bloomberg and Citi's economic surprise indexes, which represent the sum of the difference between official economic forecasts and consensus estimates, as a reason a pullback could be looming. Additionally, the ISM Manufacturing Index, which measures activity in the manufacturing sector, was weaker than expected in June, pointing toward a potentially cooling economy.
Given his uninspired view on how stocks will perform, Buchbinder recommends waiting and buying the dip when the market eventually corrects.
That might not be for another six weeks, thanks to earnings season. Historically, stocks perform better in the first half of the quarter when companies report their earnings. On average, since 2020, the S&P 500 has gained around 4% in the first half of the quarter and exhibited average performance in the second.
Because of this, Buchbinder predicts that the stock market will experience a correction in August as companies wrap up earnings reports. Investors should consider this phenomenon and recognize that the current rally market performance over the next few weeks might not be entirely driven by stock fundamentals.
Where to invest right now
In the current economic situation, Buchbinder provides the following recommendations. Overall, LPL has a neutral position on equities, citing strong AI tailwinds and earnings potential.
Buchbinder sees fixed income as a more compelling asset class with a better risk-reward tradeoff than equities in the current environment. Specifically, he points to an opportunity to shift allocations from cash into longer-term interest-bearing securities, as impending interest rate cuts could decrease current high returns on cash. LPL maintains an overweight rating to fixed income.
For investors' existing equity allocations, Buchbinder recommends leaning toward domestic equities, with a focus on growth stocks. Buchbinder also sees Japan as an attractive market internationally.
ETFs like the Vanguard Growth ETF (VUG), iShares Morningstar Growth ETF (ILCG), and Invesco QQQ Trust (QQQ) all provide exposure to growth stocks. Investors interested in gaining exposure to Japanese equities can do so through ETFs such as the iShares MSCI Japan ETF (EWJV) and the Franklin FTSE Japan ETF (FLJP).