Source: Barron's
Author: Paul R Lamonica

FOMO — or “fear of missing out” (fear of missing out) — is a well-known social media phenomenon. One investment strategist believes that when talking about the rise in the US stock market this year, she feels OMO — that is, “OK missing out” (OK missing out) (OK missing out), because corporate profits and high stock prices are unsettling.

Julie Biel (Julie Biel), chief market strategist at Kayne Anderson Rudnick, an investment firm that manages nearly $60 billion in assets, said, “For valuation reasons, I wouldn't take too many risks. The narrow width of the stock market is scary.”

Following the release of higher-than-expected inflation data last week$S&P 500 Index (.SPX.US)$It fell about 1%, and the Dow Jones Industrial Average fell nearly 2%. However, the current stock market valuation is still very high. The price-earnings ratio of the S&P 500 index, which has risen 8% so far this year, is more than 21 times higher than the average for the past 5 and 10 years based on the expected profit in 2024.

Bell said, “Corporate profits must exceed expectations; otherwise, overvaluations in the stock market will fall at a very rapid pace, and investors will scramble to exit at that time.”

Furthermore, when companies announce first-quarter earnings reports and performance guidance for the rest of the year, they must bring growth.

The trend of US stocks last week

The results announced by several major banks on Friday were mixed. Wells Fargo and Citigroup's stock prices have not changed much, but J.P. Morgan CEO Jamie Dimon (Jamie Dimon) warned that “the global situation is troubling” and that “inflationary pressure remains high... this is likely to continue.”$Goldman Sachs (GS.US)$,$Bank of America (BAC.US)$und$Morgan Stanley (MS.US)$Earnings will be announced this week.$Taiwan Semiconductor (TSM.US)$,$Johnson & Johnson (JNJ.US)$,$UnitedHealth (UNH.US)$,$United Airlines (UAL.US)$,$CSX Corp (CSX.US)$,$Procter & Gamble (PG.US)$und$Netflix (NFLX.US)$Earnings will also be announced this week.

According to FactSet data, analysts expect the profit growth of S&P 500 companies in the first quarter to be only 3.6%, mainly contributed by the technology sector — for example$NVIDIA (NVDA.US)$,$Super Micro Computer (SMCI.US)$Companies such as artificial intelligence — and some companies in the healthcare sector — such as diet medicine manufacturers$Eli Lilly and Co (LLY.US)$und$Novo-Nordisk A/S (NVO.US)$。

Joe Amato (Joe Amato), chief investment officer at Neuberger Berman, said, “We still expect corporate profits to diverge.” He pointed out that first-quarter profits for companies in many other cyclical sectors are likely to decline.

Corporate profits are expected to improve in the second quarter. Analysts expect corporate profits to increase by nearly 10% in the second quarter, and profits for the full year of 2024 are expected to increase 11% compared to 2023. Amato said, “Given the resilience shown by the US economy, more companies will gain some momentum for profit growth.”

Now is the time to “hold back or shut up.”$Ameriprise Financial (AMP.US)$Chief market strategist Anthony Saglimbene (Anthony Saglimbene) pointed out that he is uncertain whether consumers and business customers can continue to spend enough money to support broader corporate profit growth. Maybe overall inflation is falling — or not — but many Americans are still struggling, especially as rent and gas prices continue to rise. “Many companies are finding it more difficult to raise prices now,” Salimburn said.

Hopefully, demand for goods and services will not evaporate. At a time when hopes of interest rate cuts are fading away, Wall Street needs strong profit growth more than ever before. The good news is that stocks usually rise and fall with profits, so strong profit growth — even in the face of higher interest rates — may offset investors' concerns about inflation and the less “dovish” Federal Reserve.

Isn't that too high a requirement?

Editor/jayden