Key Indicators Are Improving

February 2024



It’s time for a quick update on the markets, the strength of the U.S. economy, improvements and key indicators for our outlook, and a slight shift in our allocation recommendations.

U.S. equities continue to rally on resilient economic data and stronger earnings results, with the S&P 500 rising above the 5,000-point threshold for the first time ever. Also, international stocks are off to a slower start year-to-date. As of filming, the EAFE Index, international developed stocks, is flat to a little down, and the MSCI Emerging Market index is down more than 2%, lagging the S&P 500 by approximately 7% so far. Recall, our recommended equity allocations remain focused on the U.S.

The fourth quarter earnings season continues to improve with two thirds of companies reported, and the S&P 500 fourth-quarter earnings are now on track to grow 2.9%. Positive earnings surprises have been reported by companies in multiple sectors led by information technology, industrials, consumer discretionary, and health care. Full-year 2024 earnings estimates have come down modestly, as many companies have issued cautious guidance this earning season. There is no change to our expectations for 6-12% corporate earnings growth in 2024.

Yields continue to sharply adjust as markets reprice expectations for the first Fed rate cut, amid stronger than expected economic readings and a more hawkish Fed narrative. The ten-year treasury moved from 3.82% to 4.31% in just seven trading days. As a result, bond returns are slightly negative with the Bloomberg U.S. Aggregate index, and the Bloomberg Municipal Bond Blend index negative year-to-date.

The U.S. economy continues to flex, led by a resilient consumer, a continued disinflationary trend, and expectations of two to three fed rate cuts beginning sometime around midyear. Our outlook is more positive, and we see improvement in the following indicators: Consumer sentiment, housing and mortgages, consumer spending, business surveys, corporate profit growth, the international economic outlook, and credit demand & availability. The reduced risk to our outlook has increased our confidence of a more sustainable rally in U.S. equities, and we expect a broadening out in the market participation in the year ahead, creating opportunities.

As a result, City National Rochdale recommends raising equity exposure. Depending on individual client risk profiles, that may mean considering diversifying portfolios into more economically sensitive and lagging segments of the market, like mid and small cap stocks.

The relative valuation of small and mid-cap equities relative to the S&P 500 is attractive, and by some measures, trading and deviations not seen in two decades.

Earnings revisions for mid and small cap equities have begun to turn more positive and, historically, have recovered stronger than large cap after steep down cycles. In addition, a lower interest rate environment might benefit smaller cap companies as they often rely on borrowing to enhance profitability and fuel growth. Further, mid and small cap companies generate more of the revenue in the U.S. compared to the constituents of the S&P 500, which plays to our U.S.-focused approach.

Finally, for what it’s worth, and since we’ve entered the season, presidential election years have been historically a positive backdrop for mid and small cap relative performance.

To sum up, the U.S. economy led by the consumer continues to prove resilient. Inflation is still trending downward, and our outlook is improving in multiple areas.

Important Information


The views expressed represent the opinions of City National Rochdale, LLC (CNR) which are subject to change and are not intended as a forecast or guarantee of future results. Stated information is provided for informational purposes only, and should not be perceived as personalized investment, financial, legal or tax advice or a recommendation for any security. It is derived from proprietary and non-proprietary sources which have not been independently verified for accuracy or completeness.


While CNR believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and management's view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions which may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements.


Past performance or performance is no guarantee of future results.


All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market.


City National Rochdale, LLC, is an SEC-registered investment adviser and wholly owned subsidiary of City National Bank. Registration as an investment adviser does not imply any level of skill or expertise. City National Bank and City National Rochdale are subsidiaries of Royal Bank of Canada.


Index Definitions


S&P 500 Index: The Standard & Poor's 500 Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.


MSCI EAFE Index: The MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization weighted index that is designed to measure developed equity market results, excluding the US and Canada.


Bloomberg U.S. Aggregate Index: The Bloomberg US Aggregate Bond Index measures the performance of investment grade, US dollar-denominated, fixed-rate taxable bonds.


Bloomberg Municipal Bond Blend Index: The Bloomberg US Municipal Bond Index measures the performance of investment grade, US dollar-denominated, long-term tax-exempt bonds.

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