- Corporates Are Getting Better, The Consumer Is Getting Worse. The first half of 2024 was a story of AI and massive debt refinancing removing any existential crisis for companies. The second half of the year has kicked off with a mix of optimism as we may see growing access to credit for the first time in over two years thanks to Fed cuts on the horizon, and concerns the Fed will be too late and we’ll fall into a recession soon. A wave of refinancing removed the risk of a market collapse, and now the question is if the Fed’s cuts will be in time to stimulate growth or will just be arriving as we enter a recession.
- Analysts expect AI and a broader market recovery to fuel a slight recovery in growth this year, and that may be starting to show up in the data. After seeing profits shrink 9% in 2023, investors are betting corporations can resume margin expansion and growth to fuel an earnings recovery. Improving credit conditions could facilitate this. And while corporate leadership is showing stress about the macro outlook, data on hard asset investment highlights they may be starting to put money to work, which could justify expectations for future growth.
- Even after recent volatility, valuations reflect a bet on growth resuming, and investor sentiment remains overly bullish, increasing the risk of volatility.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Neutral (no change)
- Momentum/Sentiment (10%): Negative (no change)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 40% Equity/60% Bond Split for 5-10 Year Money and 18 Month Dollar Cost Averaging.
- ...
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Trade: Buy 2024 2.900% Bonds CUSIP: 247361ZU5 (2.618% YTW, 1.328% iYTW)
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Alliance Data Systems Corporation (ADS:USA) currently trades at a historical low relative to UAFRS-based (Uniform) earnings, with a 6.0x Uniform P/E. At these levels, the market has bearish expectations for the firm...
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