As I write this, the S&P 500 is sitting on a 28% total return for 2024. But at times like this, we do need to take a step back and consider what’s going on behind a historic gain like this.
While corporate earnings are rising, they’re doing so more slowly than stock prices, which is why the S&P 500’s price-to-earnings (P/E) ratio is 28, as of this writing, nearly double its long-term average of 16.1. This puts more pressure on companies to keep earnings growing at a brisk pace in 2025.
So we’re left with a situation where continued momentum means stocks are likely to keep rising, but the risks of short-term volatility are rising, too.
There is, however, a way we can offset some of that volatility: Buy CEFs holding corporate bonds. With corporate bonds, we can take part in the strong economy and the enthusiasm that’s boosting stocks while moderating our risk.
This post originally appeared at Contrarian Outlook.