Us stocks have fluctuated sharply recently, but Brian Belski, chief strategist at BMO Capital Markets, said he was still bullish on US stocks.
He had expected the S & P to reach 4800 by the end of the year, the most optimistic forecast on Wall Street. Recently, he said he was watching the market closely to see if it was necessary to adjust the S & P 500 year-end target.
'since mid-August, the decline in the US stock market has indeed been more severe and lasted longer than we expected, 'Belski wrote in a report in late September. But instead of turning pessimistic, he thought it was a good time to buy.
Here are nine reasons why he thinks U.S. stocks are expected to rebound in the fourth quarter:
1. Us stock valuations have fallen
Belski pointed out that the decline in u.s. stocks this year has led to multiple contractions across industries and the market as a whole, with the forward price-to-earnings ratio of the s & p 500 down 25%, with real estate, communications services and information technology being the hardest hit.
But the market is forward-looking, and he believes that investors will soon return to the stock market and see the future economic environment gradually improve from the quagmire of high inflation.
two。 2/3 of stock trade-in
The forward price-to-earnings ratio of 66 per cent of the S & P 500 is below the historical average, up from 40 per cent at the end of last year, according to the data. Of the 11 market sectors, more than half of the stocks in 6 sectors have forward price-to-earnings ratios below average.
Belski said that while there is still a lot of uncertainty in the market, there is also a lot of value for investors focused on stock selection, with about 2/3 of the S & P 500 stocks having a lower-than-average NTM Pmax E multiple.
3. Cyclical and growth stocks look cheaper than defensive stocks
The conventional wisdom is that during periods of market volatility, defensive stocks in recession-resistant industries such as essential consumer goods and utilities should be turned to.
But Belski points out that after a sharp rise, many companies in these industries are overvalued, with forward price-to-earnings ratios of 80 per cent and 100 per cent, and investors should be cautious when looking for these traditional defensive stocks.
Conversely, stock prices in cyclical sectors such as discretionary consumer goods, energy and finance are below the average forward price-to-earnings ratio since 1990, as are growing industries such as communications services and information technology.
4. Earnings expectations have fallen, but may unexpectedly rise in the third quarter
Since the end of June, corporate earnings expectations have fallen by 6.3 per cent as the economy worsens, almost double the average drop of 3.2 per cent, strategists write.
But in his view, concerns about falling profits have been exaggerated and the upcoming earnings season will restore market stability and convince investors that "performance collapse is not inevitable".
Belski said better-than-expected results could spur a rally in US stocks-as we initially expected during the third-quarter report, while few market participants expected it-and boost investor confidence that "earnings elasticity will persist".
5. Current earnings forecast is higher than at the end of 2021
Better-than-expected second-quarter earnings brought another surprise: this year's profits are expected to be higher than they were at the end of 2021.
Belski noted that earnings expectations for the s & p 500 fell 3.8 per cent from the start of the year to September. Despite rampant inflation and pressure on profit margins, profits are forecast to rise by 0.5% for the whole of this year. In the face of persistently high inflation, earnings per share continue to be good in 2022.
6. The performance is still growing year-on-year.
Earnings are expected to grow by more than 3% year-on-year in the third quarter, and are expected to be "firmly positive" in each of the next four quarters, Belski wrote.
7. Us stocks tend to rise in the fourth quarter, especially after a difficult summer
The current market fundamentals seem to be bad for the stock market, but from historical data, U. S. stocks tend to rise in the fourth quarter.
The S & P 500 tends to end with strong momentum. According to BMO, the index has risen by an average of 4.4% in the fourth quarter since 1945, with the exception of 2008.
'from a seasonal point of view, U.S. stocks are approaching their strongest period of the year, and on average, the fourth quarter was the biggest gain in any other calendar quarter, 'Belski wrote. Especially after the S & P 500 fell in August and September, it performed particularly well in the second half of the year.
8. When it fell in the first three quarters, it rebounded strongly at the end of the year.
In similar cases in the past, the S & P 500 tends to rise sharply in the fourth quarter after falling in the first three quarters. According to BMO, the sample size of this situation is quite large because it has happened 22 times since 1945-excluding 2008.
"when it falls sharply in the first nine months of the calendar year, it tends to rise sharply in the fourth quarter," Belski wrote. "
9. After a sharp fall, the stock market usually rises explosively at the end of the year.
Historically, large declines in the first three quarters have usually laid the groundwork for an unusually strong fourth quarter, according to BMO. When the s & p 500 index falls more than 20% in the first nine months, it tends to rise 9.6% in the last three months, recovering some of its lost ground.
According to our historical analysis, seasonal factors still support the rise in US stocks in the fourth quarter. The s & p 500 fell more than 20% in the first nine months of this year, which will only strengthen the seasonal price trend in the last quarter.
Generally speaking, the more you fall in the first nine months, the more you rise in the last three months. "
Do cattle friends agree with the above point of view?
What is the next step for US stocks?
What is the key premise of a rebound?
Welcome to discuss in the message area.
Edit / lydia