How to read this week’s market whiplash: Investor Playbook

Despite some minor setbacks, the US equity markets (^DJI, ^IXIC, ^GSPC) have generally been strong in 2024. However, this week saw a significant drop of 600 points in a single day for the Dow Jones Industrial Average, making it the worst trading day of the year so far. In light of this, Deiya Pernas, Co-Founder of Pernas Research, and Ken Mahoney, CEO of Mahoney Asset Management, discuss the current state of index investing.

Pernas emphasizes that investors should be most concerned about the “complacency” observed in the indexes. She points out that the market is currently trading at 21 times forward, which is typical for the late stage of the economic cycle. This has resulted in large cap quality companies performing well this year. However, Pernas notes that small cap equities, which have flat value growth, may not be fully participating in the market rallies. While there are some areas of the market showing signs of weakness, Pernas believes that there is a sense of complacency at the index level.
During this earnings season, there are numerous examples, particularly in the technology sector, which make it unnecessary for us to focus on industries like airlines, autos, retailers, and others that have been mentioned. As Mahoney points out, as growth managers, we prefer to be in the fast lane, accepting the occasional turbulence. This is where the excitement lies, with the considerable capital expenditure and potential for expansion in multiples.