PORTFOLIO STRATEGY

The Year Is Halfway Over, But the S&P 500 Has Already Delivered More Than Investors Expected

Time flies when you’re having fun… and it really flies when the S&P 500 keeps climbing month after month. Believe it or not, we’re halfway through 2024 — and it has exceeded investor expectations in many ways. The S&P 500 is up 15% year-to-date, already enough to put past years’ returns to shame.

Bull or bust? The S&P 500 has surpassed Wall Street analysts’ price targets, setting 32 all-time highs this year. Nvidia ($NVDA) led the charge, contributing nearly a third of the S&P 500’s returns. With 302 of the index’s 503 components up so far this year, investors are on cloud nine heading into the year's second half (or rather, floating on the S&P’s 5.4K).

• In our latest Bear and Bull survey, 66% of readers were bullish heading into July, the highest since Feb. 2024.

• Recently, institutional investors raised their original targets, reflecting strong first-quarter earnings and economic data.

A Brief Intermission

With conflicting economic data, an upcoming US election, and a Fed that can’t seem to decide the direction of interest rates, predicting the S&P 500’s movement in the second half of the year is tough. AI stocks have stumbled in recent weeks, causing concern that their record run might be ending.

• In a June Bloomberg Pulse survey, nearly half of respondents expected the S&P 500 to drop at least 10% this year, while 35% forecast the decline in 2025.

• Valuations are also a concern, with 52% of Bloomberg survey respondents calling the S&P 500 the “most overpriced” asset over US credit and gold.

There’s always something to worry about… But even then, the S&P 500 knows it’s a Hot Stock Summer — and investors can’t seem to take their eyes off the market or their hands off the buy button. If you’re worried about a dot-com-style market crash, data shows today’s markets are healthier and less expensive than in 1999. For those skeptical about consecutive triple-digit market increases, history proves otherwise. But to keep the party going, companies will need to deliver strong earnings, kicking off late next week.

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LARGECAP RECAP

✈️ Boeing Is Reuniting With an Old Friend to Address Safety Issues

Boeing’s ($BA) nearly 20-year outsourcing experiment is finally coming to an end — and it only took several fatal crashes, impending criminal charges, and a blown-out door for them to realize a change was needed. After spinning off Spirit AeroSystems ($SPR) in 2005, the two companies are coming back together in a $4.7B all-stock acquisition — which comes at a trying time for Boeing.

• Boeing’s stock is down nearly 25% this year amid its 737 MAX controversies, which have spawned the departure of CEO Dave Calhoun and criminal charges stemming from the planes’ fatal crashes.

• Jefferies analyst Sheila Kahyaogl said the benefits for Boeing “are priceless,” and the deal will provide much-needed operational improvements.

Getting off the ground: The deal will reunite thousands of employees, many of whom have decades of experience at Boeing. After all, 70% of Spirit’s revenue came from Boeing last year. Spirit’s CEO Pat Shanahan, a long-time Boeing exec credited with turning around the 787 Dreamliner’s early problems, is also a contender to replace Calhoun. An analyst from Third Bridge told Barron’s that this wouldn’t be a “quick fix,” but at this point, investors will settle for any solution.

💪 Wall Street Giants Tease Higher Dividends After Passing Fed Stress Test

America’s banking elite is once again proving that “the house always wins.” Despite commercial real estate (CRE) anxieties, Wall Street juggernauts flexed their financial muscles in the Fed’s annual stress tests. All 31 mega-banks passed with flying colors, setting the stage for dividend hikes and share buyback plans.

• Wells Fargo ($WFC), Bank of America ($BAC), and Citigroup ($C) raised their dividends by 14%, 8%, and 5.7%, respectively — while JPMorgan Chase ($JPM) hiked its dividend and announced a share buyback.

• The Financial Select Sector SPDR Fund ($XLF) now has a 1.59% dividend yield, and further hikes could attract more investors as earnings season approaches.

A tale of two banks: While Wall Street thrives, regional banks struggle, highlighting a growing sector divide. This is emphasized by their stock returns, with $XLF returning 10% over the past six months, eclipsing the −7% return of the SPDR S&P Regional Banking ETF ($KRE) during the same time. David doesn’t seem to be beating the goliath, and all eyes will be on these financial powerhouses as we enter earnings season.

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Markets & Economy

Lumber prices tumble into building season: High borrowing costs are slowing residential construction and home improvement, pushing framing-lumber composite prices to their lowest since May 2020. [Read]

Student loan payments halted for millions: Under the SAVE plan, the Biden administration paused payments for 3M borrowers, defending the program in court. Eligible borrowers won’t owe monthly payments for the time being. [Read]

Redbox owner bankrupt after buyout: Chicken Soup for the Soul Entertainment struggles with massive debt and unpaid bills following its 2022 acquisition of the DVD rental company. [Read]

Business & Wealth

Consultants cash in on AI boom: Firms like Boston Consulting Group and McKinsey see surging demand from businesses seeking guidance on adopting generative artificial intelligence. [Read]

Warren Buffett pledges $100B to new charity: Upon his death, this pledge will create the world’s largest charitable trust, managed by Buffett’s three children, who must unanimously agree on expenditures. [Read]

US employers favor part-time workers: While full-time job postings remain flat on jobs site Indeed, part-time gigs have increased by ~10% since Jan. 2022, reflecting companies’ need for flexibility amid economic uncertainty. [Read]

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DIGIT OF THE DAY

6% Is The New 3% When It Comes To 401(k) Auto Enrollments

You might reach your retirement goals sooner — and you can thank the law for that. In 2022, the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 was passed, mandating most companies to automatically enroll eligible employees into company retirement plans, starting at a contribution rate of at least 3% by 2025. Surprisingly, nearly one-third of companies already exceed this requirement by starting contributions at 6% or higher.

• In 2023, participants in auto-enrollment plans saved 12.7% of their annual income, compared to an average of 10.3% in plans requiring manual sign-ups.

• Vanguard found that 60% of companies now automatically enroll new hires, boosting 401(k) participation rates to 82% from 66% in 2007.

Retirement matchmaker: Many plans raise contributions by 1% annually until reaching ~10% of an employee’s pay. This approach ensures employees maximize matching contributions, aiming for a total savings rate of up to 15% of annual income. However, studies have found that higher default contributions may lead some workers to take on debt to meet their financial needs.