Earnings growth will carry more weight than valuation in 2024, says Edward Jones' Mona Mahajan

Let’s bring in Mona Mahajan, Edward Jones, Senior Investment Strategist, Mona, and talk about this sort of, I think it’s been described as two steps forward, one step back that we’ve been managing to put together last few weeks. What do you think’s going on? Yeah, thanks, Carl. Look, it’s been a nice second-half of last week. In fact, we got 3 back-to-back what I’d call a triple whammy of positive news flow for the markets. Of course, first starting with the Fed kind of taking that tail risk of a rate hike off the table, Jerome Powell certainly highlighting that he doesn’t see the stag and he doesn’t see the flation. I thought that was a great line. Then we got an ongoing slew of positive earnings, you know, underscored by the Apple earnings on Thursday and then finally Friday. I think you know was the cherry on top where we got this almost Goldilocks jobs report where we got a tick higher in the unemployment rate, but notably a nice tick lower in that wage gains figure. So overall we’d say is you know we came into the year with a strong market. We went through the month of April and we did get our first 5% plus correction. But what we’re really looking at is can that correction become anything deeper or more prolonged. And we’d say given the fundamentals of potential rate cuts, an economy that’s holding up, it could be cooling, but at cooling in a very nice gradual way that could lead to better inflation trends going forward. So we’d say generally the fundamentals are holding up. And by the way, we think it’s the earnings growth story this year that really carries more weight than any sort of valuation expansion. So net, net, we’d say, yeah, yeah, I was going to say bottom up consensus is inching up a little bit as we work our way through the season here. I think close to 244. You think that’s that’s more important than any kind of PE. Yeah, you know clearly last year was a story of valuation expansion. We think this year if S&P returns positive, it will because it will be because earnings growth is positive. The nice part of that story is you know early on in this year Q1 and Q2 that earnings growth is driven by mega cap tech, those same growth parts of the market. But as we get towards the back half of the year, earnings growth does start to broaden and we think that could be one of the catalysts that leads to a broadening of market leadership as well. So earnings growth still looking at about 10% this year versus the zero to 1% last year. Have earnings X MAG 7 impressed you or is it just sort of treading water? How do you, how do you characterize the earnings growth of that, those two 493 for example? Yeah, absolutely. Look, I think again first quarter if if you take out the S&P or take out the MAG 7, the S&P 493, not very impressive, probably flattish earnings growth. But in the back half of the year 5050, if so, even if you take out the MAG Seven, we’re still looking at a nice 5 to 7% earnings growth for the rest of the market. And we think that’s really the story. If you get a combination of a Fed that does lean towards rate cuts this year and we get earnings that hold up, that will lead to unlocking a value in both the cyclical parts of the market. But also if you go down the cap space, if you we think mid caps in particular are starting to look pretty attractive here. So we’d say think about balancing that portfolio. If you get more volatility, keep in mind we’re heading towards May, May through September and then an election period. So there could be periods of volatility ahead of us still. But if you use that as opportunities to think about broadening your portfolio both in equities and by the way the bond space is looking more and more interesting too as we head towards rate cuts, we think we’re for long term investors were set up pretty nicely here.