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Economic Analysis

Rotation in Process: March 23, 2024

Rotation in Process
Good morning and welcome to the Weekender for Saturday, March 23,2024. It was another record-breaking week for the tech-heavy Nasdaq, while the S&P 500 and Dow closed slightly off their recent all-time highs. For the week, the S&P 500 was higher by 2.3%. The index trades at 21.7 times 2024 earnings estimates, yielding 3.2% in free cash flow. By comparison, the US government’s two-year bond yield is 4.6%. The risk premia for stocks is negative and in very unusual territory. By contrast, the Nasdaq 100, including the largest technology companies in the United States, trades at 27.2% and generates a free cash flow yield of only 2.7%. We believe equities are very expensive. Investors have bid up equity prices, expecting earnings in the second half of 2024 and all of 2025 to grow by double digits, propelled by the fuel of artificial intelligence.

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