Q2 2024 Equity Market Outlook

Key takeaways

Actively bullish. What next for stocks after a strong start to 2024? While a near-term pullback wouldn’t be surprising, we see fuel for the positive momentum to continue throughout the year ― but with selection growing more important. As Q2 begins, we see:

  • A relatively market-mild election season
  • Stock-specific ways to maximize mega forces
  • A growing opportunity set for GenAI investment

A positive January for U.S. stocks is typically a prelude to a positive year, with our analysis finding the correlation to hold 80% of the time since 1928. 2024 is also an election year, historically the second-best year in the four-year political cycle (behind year three). We believe the historical signal of a strong start, combined with what is likely to be peak interest rates and positive earnings guidance, bode well for equities.

Stocks look well positioned to outperform bonds and cash again this year, but high valuations mean investors need to be choosy. The equity risk premium, a measure of relative stock pricing versus bonds, looks more compelling for the equal-weighted S&P 500, sitting near the market’s long-term average. This implies the need to look beyond the mega-cap stocks that have been dominating the widely cited market-cap-weighted index to source attractively priced names with good long-term prospects.

The opportunity set for stock picking is the most robust I’ve seen in 20 years. It’s an exciting time for active managers.