Catalysts for the second half of the year

As we approach the start of the second half of the year, we highlight the strong performance of the S&P 500, which has accumulated gains of approximately 15%. This performance primarily reflects optimism around artificial intelligence (AI), resilience in corporate earnings, and expectations of a potential Federal Reserve (FED) reference rate cut. Here are the key events that investors will be watching closely for the remainder of the year:

2Q24 and 3Q24 Earnings Season: Second-quarter earnings season is scheduled to begin during the second week of July, led by JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C). Annual earnings growth of 8.8% is estimated for S&P 500 companies, marking the highest rate since the first quarter of 2022 (+9.4%). For the third quarter (3Q24), potential growth of 8.2% annually is forecasted, which could lead to an 11.3% annual increase in corporate earnings for the full year 2024.

Other Geopolitical Events: The United Kingdom will hold early elections on July 4, determining the composition of its Lower House, and ultimately the country’s next government. In France, the second round of parliamentary elections will be held on July 7, where the far-right Rassemblement National (RN) party won a historic 31.4% of the vote for the European Parliament, beating the 14.6% obtained by Macron’s party.

Boom in Artificial Intelligence (AI): More than 18 months after the launch of ChatGPT, the growing adoption of AI has significantly boosted the markets. Companies such as Microsoft, NVIDIA, Apple, Alphabet, Amazon, and Meta have contributed 64% of the global stock market’s total return since then. In June, NVIDIA became the world’s largest publicly traded company. This growth suggests that capital expenditure (CAPEX) in AI could continue in the coming months, further strengthening earnings growth for the sectors involved, such as semiconductors, which could grow 50% this year and 25% by 2025. As the AI ecosystem grows, it is estimated that CAPEX for developers could reach US$331 billion by 2027.

Interest Rate Cuts: Slower economic growth and expectations of a slowdown in inflation could lead to further rate cuts by central banks such as the Swiss National Bank, ECB, and Bank of Canada. On the other hand, the Bank of England’s first cut is projected to be in August, and the FED is expected to implement its first 25 basis point cut on September 18.

U.S. Presidential Elections: On November 5, U.S. voters will decide the outcome of the presidential election. Democratic President Joe Biden and former Republican President Donald Trump will face off in key debates scheduled for June and September. Current polls show a slight advantage for Trump, although a significant proportion of voters are still undecided. Historically, election years have tended to generate positive returns in the markets, with the S&P 500 posting an average historical return of 10.1% since 1937.

Some key dates for the second half of 2024

Source: UBS

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