The first time Wall Street was as happy as it is now, it was already twenty years ago.
The latest data shows that Wall Street agencies have rated S&P 500 stocks, and currently about 56% are "buy", which is a new high since 2002. After an exciting profitable season, the US stock market participants seem to be rejuvenated. This is one of the latest proofs.
The most "bull" moment in twenty years
Although historical statistics show that analysts as a whole tend to have a clear tendency to be optimistic, their current optimism does have reasons. After all, the stock market is still rising, and corporate profits are continuously surpassing it is considered extremely High expectations. Whether it is the spread of the delta variant virus or the possible weakening of the US Fed's stimulus policy, it has not been able to fundamentally shake the performance of the US stock market.
Todd Jablonski, chief investment officer of Principal Global Asset Allocation, pointed out in a research report: "It is true that the financial environment and low interest rates make investors have a good appetite for risky assets, but the current situation is not solely based on this. It can be explained-the fact is, everyone expects a major improvement in fundamentals in 2022."
In the context of continuous upward revision of earnings growth expectations, analysts at Goldman Sachs and Credit Suisse have recently updated their 12-month point forecasts for the S&P 500 Index. At present, the general expectation of Wall Street is that the target point of the S&P 500 index in the next twelve months is 4949 points, which is 11% higher than the current point. At the same time, the potential increase in the 12-month target point of the European Stoxx 600 index is about 9%, and the Asian market has reached 21%.
Goldman Sachs equity strategist Bell said: "For some time, we have been holding a bullish stance and increasing our holdings of global stocks... However, the strength of corporate earnings still surprised us, so our target point must be based on this. Embodied."
BlackRock Global Allocation Fund portfolio manager Russ Koesterich said: "The rate of economic growth can be said to be the fastest in decades, and this is undoubtedly a powerful boost to corporate profitability. Factors.” Although the optimistic expectations for positive corporate earnings have been digested in advance by the market to a certain extent, analysts believe that there is still room for further growth in the large inventory position.
The market’s enthusiasm for stocks is in fact by no means a patent of the United States. In Europe, about 52% of the Stoxx 600 stocks are rated as "buy" and other equivalent standards. This ratio has also set a new high in the past decade. In Asia, this proportion has risen to 75%, at least the highest since 2010.
FactSet's data shows that the various performance indicators released by American companies in the second quarter, whether it is corporate earnings, revenue or profit margins, have set a record for their expansion speed since they began to collect relevant data in 2008.
Driven by this strong performance, it is no wonder that the US stock market will once again climb to its peak. So far this year, the S&P 500 index has risen by more than 18%. Counting from the pandemic of the pandemic and blockade that led to a chaotic global financial market in March last year, the number of major U.S. stock indicators has almost doubled.
Historic second quarter
At the beginning of 2021, the S&P 500 index is roughly equivalent to 22.7 times the expected earnings per share for the next twelve months. Since earnings growth has surpassed that of the broader market, this forward price-to-earnings ratio has now fallen to 21.1, but it is still significantly higher than the average of 18.1 over the past five years.
Kostrich observed: "Since this year, the price-to-earnings ratio has generally stayed in place, and the rise in the market is mainly due to the continuous growth of corporate earnings."
Obviously, despite strong earnings growth, growth expectations still need to be re-examined in conjunction with the valuation of US stocks. Tim Murray, capital market strategist of T Rowe Price's multi-asset team, pointed out: "This means that in the next period of time, when profits exceed expectations, the potential upside is less than normal. On the contrary, when profits are missed In anticipation, the potential downside space will exceed the normal period."
Costridge said that although the current valuation of U.S. stocks cannot be labeled as "cheap" by any means, it is certain that next year, as the economic growth trend surpasses the trend, that is, the long-term level of 2%, and interest rates continue to maintain In the downturn, many US multinational companies with strong cash flow creation capabilities can still maintain "healthy revenue growth"
The second quarter earnings season can be regarded as one of the strongest cycles in history, but to a certain extent this is also due to the “assist” of the “low threshold” of the same period last year. In the second quarter of last year, due to the epidemic, the world Many places have been blocked to varying degrees, and the economy is in a shutdown and semi-shutdown. JPMorgan Chase’s data shows that 90% of the S&P 500 companies that have already released financial reports are combined with the remaining 10% of the expected figures. In the second quarter of this year, US corporate profits increased by 90%, which is higher than market expectations. Out of 17 percentage points, the revenue growth rate exceeded expectations by nearly 25%. At the same time, European corporate profits increased by 71%, which was 16 percentage points higher than market consensus.
In the research report, the strategist team of JPMorgan Chase pointed out that whether in the United States or in Europe, the positive performance of companies on both sides of the Atlantic can undoubtedly be attributed to the overall economic growth during the same period.
These strong figures are obviously far beyond what Wall Street expected at the beginning of the earnings season. As of the end of March, the consensus among Wall Street analysts was that the S&P 500's second-quarter earnings per share growth rate would be 53% and revenue growth rate would be 16%.
Kasper Elmgreen, head of Amundi's equity division, commented: "Judging from the data that has been released, this profitable season is historic."
For investors, the situation ahead has become more challenging. After all, the current US stock market has already reflected a considerable degree of optimism, and valuations are still at historic highs.
"For the S&P 500 Index, this is indeed a spectacular quarter, and the question now is, from here, where will our next stop be?" David Kelly, chief global strategist at JPMorgan Asset Management Kelly) asked, “It will be very difficult for companies to maintain such a high level of performance, and the valuation of the US stock market is undoubtedly much higher than that of the rest of the world.”
The future trend is quite subtle
Ben Ladler, a global market strategist at eToro Ltd., is an optimist who believes that the economic and business restart "has not really started yet." For example, in industries such as restaurants, travel agencies, and hotels, the overall profitability in the second quarter was still 85% lower than before the crisis began, which left huge room for rebound.
Luke Eben, chief economist at Kempen & Company, is quite optimistic about the outlook for value stocks. "These stocks come from places that are much more severely affected by the epidemic than in other areas." He wrote in the research report, "If the recovery process continues, the big wheel will point to these places."
However, this kind of generally bullish sentiment can not be said that there is no suspicion of being too optimistic, and investors have made mistakes in judgment, and it has not been once or twice before.
Dave Lutz, head of the ETF department of Jonestrading Annapolis, wrote in the research report: “I believe that the most likely direction of the market is often the direction that hurts most participants. If all market analysis If the teacher chooses to be optimistic, then I will become very cautious."
However, at least the market's current mentality is not a consolidation mentality. The last time the S&P 500 Index suffered a decline of at least 5% was already 193 days ago. The length of this period without a significant setback is twice the historical long-term level.
Salm-Salm & Partner’s portfolio manager, Frederick Hildner, made an exquisite interpretation: “Now, there is a lot of downward momentum on standby, but any consolidation in the market, even if it is appropriate , There is a high probability that it will be short-lived."
In the second quarter, the profit margin of the S&P 500 increased to a record 13%. On the basis of 12.8% in the first quarter, it has gone further, and this is also the fact that FactSet has been tracking this data since 2008. The highest level since.
Costridge said that in the second quarter, "profit margins held the line", he warned that in the next few quarters, margin pressure will appear, that is, companies may not be able to input costs such as wages. The pressure shifts downstream. By then, US stocks and their high valuations will face a real test.
"Wage inflation is not a temporary thing." Kelly pointed out that the Federal Reserve regards lowering the unemployment rate as a high-priority policy goal, and this will inevitably "trigger higher wages and put pressure on corporate profit margins."
Another potential headwind for US corporate earnings in the future is that the Biden administration vigorously advocates raising corporate tax rates, and higher tax rates are naturally not conducive to profit growth.
Corporate profits "may have peaked... As the market begins to digest the possibility of higher tax rates, the momentum of value-added may slow in the next few months." Lale Akoner, senior market strategist at BNY Mellon Investment Management, said, "My estimate is that from October to December at some point in time, market prices will begin to reflect this factor.