Source: Zhitong Finance
The US stock price first reflects the profits and prospects of American companies. No matter how aggressive political advertisements are or how personal feelings are, the performance of American companies is actually very good.
In in-depth conversations with many investors, financial advisor Martin Tyrill observed a general sentiment: they are both happy and confused that major stock indices have reached or are close to their all-time highs. Although the inflation rate fell from a high point, it was still above 3%. This changed the market's expectations for interest rate cuts, from optimistic expectations in the second half of last year to discussions about the need to cut interest rates, and even discussions about raising interest rates.
In the political arena, early advertisements for the US presidential election further increased market uncertainty. Republicans emphasized the huge and growing federal debt, implying that the economy is in trouble, while Democrats implied economic failure at the state and municipal levels.
Against this backdrop, concerns about a market bubble began to surface, bringing a false sense of security to some investors. However, through analysis, Tyrill believes that the rise in the market is not a bubble. Although the Nasdaq index is close to a high point, the leading rise in the Dow Jones index shows the strength of industry and manufacturing, which is not the source of the bubble. In fact, manufacturing output in the US reached a record high in 2023, and this trend is expected to continue in 2024.
In any case, the rise in the market was based on two solid fundamentals. First, corporate profits in the first quarter exceeded expectations. According to FactSet, the average profit growth rate of S&P 500 companies reached 7.5%, the highest level since the second quarter of 2022. Second, the current society is in the early stages of a shift in the way we work, which indicates a significant increase in productivity. Technologies such as artificial intelligence are changing the way businesses operate. Although they may disrupt the social level, from a commercial perspective, this will bring greater efficiency and profitability.
Despite this, market concerns remained, which moderated the rise in the stock market to a certain extent. Of the companies that issued results guidance for the next quarter in this earnings season, 54 issued negative guidance or fell short of expectations, while only 37 companies had positive guidance. However, CEOs' concerns about inflation are dwindling, which indicates that market concerns about this issue are easing.
But in the end, Tyrill still believes that US stock prices first reflect the profits and prospects of American companies. No matter how the political advertisements attack, and regardless of personal feelings, the performance of American companies is actually very good. Despite concerns about the future, the current market valuation is reasonable when taken into account.