GLOBALT Investments senior portfolio manager Keith Buchanan joins Wealth! to break down how investors can rebalance their portfolios as Wall Street heads into the second half of the year.
Buchanan explains that while focusing on large caps (^DJI, ^IXIC, ^GSPC) in the first half of the year, “now we’re looking at becoming a little more balanced as it’s coming into this earnings season, which we think is critically important… This one is critically important to this bull market we’re on because of the 10 largest names in the S&P 500 generate very large, disproportionate amount of the growth as well.” He adds that this is going to become more challenging into 2025.
He says that large-cap tech and AI-oriented names have been the major market drivers, and investors should look for outside opportunities. He points to middle and high-end consumers who have been keeping the market out of a recession, making Costco (COST) a particularly great investment. With the 2024 presidential election looming ahead, Buchanan adds equity markets may face pressure as a result.
For more expert insight and the latest market action, click here to watch this full episode of Wealth!
This post was written by Melanie Riehl
Video Transcript
Well, markets mixed here today after both the S and P 500 the NASDAQ hit fresh intraday record highs.
We kick off the second half of the year that happened this week and you might wanna rebalance your portfolio to stay on track to discuss.
Let’s bring in Keith Buchanan Global Investments, senior portfolio manager here with us.
All right.
So let’s talk about this second half playbook here, Keith, where are you seeing some rotation take place and where are perhaps our investors leaning further in to their portfolio trade?
Thank you very much for having me.
We’re looking at the second half of this year as a um an opportunity again, as you mentioned to, to, to rebalance a bit.
We’ve been really concentrating on large cap growth.
We’ve uh been in a position now, class has benefited uh from that positioning.
But now we’re looking to become a little more balanced as uh it’s coming into this earnings season, which we think is critically important.
Every earnings season is important, but this one is critically important to this bull market.
We um because of the, the 10 largest names sp 500 generate very large disproportionate amount of the growth as well.
Um So as those names have performed and have grown into those multiples, we feel like that’s gonna become more and more challenging into the second half of this year into 2025.
Uh So this earnings season is really gonna be a barometer of where those 10, 7 to 10 names or so, uh, will contribute to, to guidance and S and P 500 earnings in 2024 and 2025.
Um that they get a lot of growth and a lot of that come from those, those top largest names in the SP 500 Keith.
It’s been a uh a hot NVIDIA year could be a hot NVIDIA summer.
Who knows?
I mean, as we’re thinking about some of the specific overcrowded trades that investors have piled in to, were you anticipating that we could see a shift, at least in the mindset of where some investors who might have been talking about their own portfolio and trading strategy.
A a at the barbecue over the past couple of days are trying to figure out.
Ok, I’ve seen insiders taking some profits.
Should I be taking profits too?
How can investors know when it is the right time to take profits and reallocate them?
Um We’ve seen, you know, large cap growth technology, um artificial intelligence oriented names um just really become uh make the market really top-heavy.
Um And, and we’re looking at spaces outside of that.
Uh We again, we’ve been positioned for that for some time now.
Um But they’re looking at spaces like um the the consumer which is really driving, you know, this market really kept us out of recession for the last four years of um you know, uh turbulent market environment.
Um The middle to high end consumer is doing a little better than uh those on the end.
Um We feel like Costco actually has a name that benefits from that um that shift in, in, in spending that remain more steady with the high and middle income earners as well.
Uh The financial, we feel like the steeping of yield curve is will make those names pop up over the last couple of weeks.
Um Of course, we’re coming into, you know, when those names, the money center banks start to report um and we’re positioned um to benefit from some of that as well.
So we look, we’re looking at financials, some names and, and consumer driven names, uh a couple of industrials as well that might be oriented as, as value stocks.
Um But we feel like our position to take it the mantle of this bull market um A as the top 10 names, uh the f of the Magnificent Seven, if you will um coming to some earnings stresses that might hamper those performances from those names going forward the second half of this year, Keith, what do you believe the prevailing theme for the earnings season that we’re about to go into could be is this growth real, the bottom up expectation is for 9% growth in 2024.
A large portion of that, the majority of that is coming in the second half of this year.
Um without the top 10 sp 500 names, that growth expects it to be about 6%.
So almost a little over a third of that is coming from just a few names.
Um There will be a lot of attention on the Apple and NVIDIA and, and Microsoft.
So the world and rightfully so because as if that earnings growth is five instead of nine, the multiple of the market completely changes.
Um So there’s a lot of riding on this earnings season, in particular for those few names.
Um as the SV 500 again, has been priced for tremendous growth frankly over the last second half of this year and next year, uh whether we can fulfill that expectation as yet to be seen to what extent?
Just lastly while we have you Keith, to what extent is the general election here in the USA Wrench in portfolios coming into, uh what is expected to be another vitriolic type of event here in the US.
Um the politics have, has been uh in a, in a woven in market dynamics for some time.
Now, uh We think this year is gonna be one of those banner years where politics dictates the, the, the movements and fixed income and equity markets, particularly here in the U SS also from a currency standpoint.
Uh, we’ve seen that change since the debate on, on Thursday in a pretty dramatic way.
It shifted very hard, um, uh, in a, in a kind of a pro Trump manner on Friday and then some on Monday.
Um, but that so much shifted back.
Um, and, and this week that is really like holiday week.
So it’s really hard to have any main takeaways.
Um, but as this second half wears on, we will see that become more and more, uh, a focus of, of the marketplace and, and those bas best that have taken place and be in place, um, depending on the polls will come, um, you know, come to a head in November.
Um, I think down ballot as well.
We see some, some shifts as far as where spending could be and what if, um, you know, what parts of the market can benefit that, um, also being an opportunity and pote potentially even a challenge for some parts of the, uh, equity market those best again, it’s, it’s fairly early to, to place the and really have hard takeaways from, from where we are right now politically.
Um, we kind of shy away from that until things come into more focus later in the fall.
Uh, we think the earnings driver really the was pushing markets, um, back and forth especially from a monetary policy standpoint as well.
Um We saw the jobs report this morning, how that plays into what the Federal Reserve’s reaction function may be and what, how that might change coming into the fall.
Um That’s a, that’s we feel like some more predominant uh dictator of the direction of the markets at this point.
Certainly Keith Buchanan Global Investment Senior portfolio manager, great to see you Keith and thanks so much for joining us today.
Thank you.
