Market Pulse: Factors Influencing the Market

Stock prices are currently stagnant due to the high valuations mentioned at the beginning of the year. I anticipate only modest gains by the end of the year. Despite this, there are still some favorable factors at play that investors should take note of.

The trajectory of earnings and interest rates will have a more significant impact on the market than the Federal Reserve’s actions. I have previously emphasized these two critical factors. There are no expectations of rate cuts in the short term. Consequently, investors have adjusted their strategies, leading to a gradual increase in longer-term rates. Recent earning reports have exceeded expectations, with estimated S&P earnings projected to grow by 15 percent, with most of the expansion coming from the Magnificent Seven.

There is a popular adage that states, “It’s a market of stocks, not a stock market.” This notion underscores the fact that every day, a few stocks experience significant price movements. For instance, Tesla is frequently among this list, while Airbnb has recently seen a 15 percent increase. Therefore, it is essential for traders to stay alert to capitalize on such shifts.

As investors rather than traders, we see potential in energy infrastructure stocks. Long-standing favorites such as Williams Cos. and Kinder Morgan, along with the newly added ONEOK, present a compelling bullish case.

Key catalysts that could potentially drive the market higher remain relevant to some extent. While they may not be strong enough to be classified as tailwinds, they still serve as positives. These catalysts include the growth in earnings and the possibility of steady or even decreasing short-term interest rates.

Long-term interest rates, determined by the market rather than the Fed, have the potential to continue rising as investors express concerns about inflation and escalating prices. This scenario shows the importance of inflation and rising prices on consumer goods and services, impacting people’s general perception. While rising long-term rates can benefit savers, they also increase the cost of capital for companies and mortgage rates for new home buyers.

Interestingly, international and emerging markets have exhibited the best performance since the recent election. Although I do not currently hold any positions in these markets, I am closely monitoring the iShares Developed Markets EAFE ETF (EFA) and iShares Emerging Markets (EEM).

To sum up, I maintain a positive outlook for well-positioned energy, utility, financial, and healthcare companies that offer dividend payments and regular increases. Whether viewed as tailwinds or simply favorable conditions, the combination of rising earnings and stable interest rates provides reasons for optimism in the market.