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Joining me now to discuss how to position your portfolio for the rest of 2024. We've got good friend of the show, Sam Stovall, who is the CFRA chief or research chief investment strategist. Thanks so much for taking the time here with us, Sam. So, let's talk about that, that positioning off of the initiation of the Fed's cutting cycle and going into a period where earnings growth is really going to become challenged, it seems, at least, depending upon how the macro continues to play out.

Well, you're right, and it's good to see you again, Brad. Uh, basically, what it's interesting, but wanting is more profitable than having. So, it's essentially, uh, going back to 1990, whenever we had the last rate hike going into the first rate cut, the S&P was up about 18%. This time, it was up more than 23%. Yet, when we look at the first month's performance after the first rate cut, traditionally, the market really goes nowhere. The benchmarks themselves, it's more the the sector performances underneath, um, where some of the defensive areas do well, but also tech and communication services come back into the forefront. We're still in the challenging seasonal period for the market. Uh, September and October are the two worst months during election years. Um, but traditionally, we get that end-of-year pop after the uncertainty around the election itself has run its course.

You know, in in your own research, and as you're kind of lining up the strategy for the back half of this year, what type of allocation are you thinking is is perhaps most demure or most mindful for a lot of the investors out there that are trying to figure out exactly how they navigate not just through the initiation of a rate-cutting cycle, but also through an event and a general election as well?

Sure. Well, first off, uh, I think investors have to realize that, uh, the market was anticipating this rate cut for quite some time and bought up a lot of the tech stocks or the large caps in general, tech in particular, to the point where the S&P 500 is now trading at a 35% premium to its long-term forward PE ratio, and tech is at a 55% premium, but at least that's down from the recent 78% premium. Uh, the reason I mentioned this is because two areas look very attractive, mid- and small cap stocks, because they're trading at 30% discounts to their long-term relative PE, meaning their own price to earnings versus the market itself. And while fundamentals tell you what, technicals tell you when and how far. And now that the Fed has started to cut interest rates and there's a very good likelihood that we will have a soft landing, I think you'll find a lot of investors more willing to move into the mid- and small cap areas. So that's what we have in terms of our allocation, a little increased exposure to mid- and small caps. And depending on your personality as an investor, you know, I'm sort of a nervous Nelly. I like to wear a belt and suspenders. You might want to be going for those lower beta, higher quality oriented ETFs or stocks.

Look, I like a belt suspenders. I'll put the wellies on too, and and why not some waders as well at the same time, just make sure you've got full coverage there for any type of environment we're waiting through. All that considered here, what is the target you believe, especially coming off of all-time highs that we had seen at the close yesterday? I mean, the larger question that a lot of people are probably going to be talking about in some co- social construct or another this weekend is, do you think we can go higher from here? And what's the answer to that?

And the answer is yes, I do think we can go higher. You know that I'm a big fan of history. Uh, history is a great guide, but it's obviously never gospel. And we have just recovered all that we lost from the 65th pullback since World War II. And history tells us that once we do recover all that we lost after a decline of 5 to 10%, the market continues to advance for another three to four months, gaining at least 5% on average, before slipping into another decline or digestion of gains of 5% or more. So I I think certainly that if we tread water or present a better buying opportunity in October, I do think that we'll get that end-of-year rally, uh, and then probably end up with a good January. And you know the old saying, as goes January, so goes the year.

Does that include an uninversion of the yield curve? Because you have those that will continue to to call out the inverted yield curve to say that's that's one reason to potentially still be cautious.

Well, and I think whoever says that is correct, uh, because there are a lot of historical indicators pointing to recession in the coming 12 months have been in existence for now two and a half years. Uh, so does the boy who cried wolf get credit if the wolf finally does come? So, an inverted yield curve, the leading economic indicators year on year declining, uh, earnings recessions, etc., all of those things typically pointed to a recession, but we have yet to have it. Maybe this pandemic, uh, is sort of upending a lot of these old indicators. The uninversion, traditionally what happens is that the recession occurs after the inversion has reached its trough and we have recovered by an average of 60 basis points, um, meaning the difference between the 10-year yield minus the two-year yield. If the 10-year is higher by 0.60 or more, then usually that's the timing in which a recession starts. But this time could be different because there's no guarantee we're heading for recession. We're looking for 2.7% GDP growth this year, 2.2 next year, and then 2% in 2026.

Sam Stovall, who is the CFRA Research chief investment strategist, Sam, always a pleasure to get some of your time, your insights, and perspective. Thanks so much.