Source: Jin10 Data
Author: Zhu Yu
The analyst from Industrial Bank of France said that if a bubble is formed, the S&P 500 index will reach 6666 points.
After enjoying a few days of glory in the bear market, Nvidia returned strongly under the push of bottom-buyers, and also boosted the S&P 500 index.
Manish Kabra and Charles de Boissezon, strategists at French bank Industrial Bank, said that the "next wave of growth" of the S&P 500 index will not occur until the first quarter of 2025, accompanied by the Fed's rate-cut cycle.
These strategists insist that their "very bullish" year-end target for the S&P 500 index is 5500 points. They pointed out that considering the narrow breadth of the market, only a few stocks are leading the market's rise, and the S&P 500 index is at a "key turning point".
They proposed two completely different scenarios: the first is the bear market phenomenon that often occurs during recessions. They said that if this is true, unless the Fed starts raising interest rates again, the S&P 500 index will face the risk of falling to 4000 points.
The second scenario is that many stocks that have risen sharply have pushed the S&P 500 index into the bubble area. Based on past large bubbles, they believe that the index could reach 6666 points in this scenario.
Kabra and his colleagues believe that even if some large tech stocks are priced at bubble valuations, it will still take time for the stock market to reach its peak. For example, they pointed out that Nvidia's P/S ratio is 25 times, slightly higher than Cisco or Microsoft during the TMT bubble peak.
However, given the consensus expectations of economists, the average annual growth rate of EPS of the seven giants of the US stock market in the next three years is expected to be 17%. They believe that the Nasdaq 100 index has not yet over-expanded like it did in 1999-2000.
Strategists said:"Some indicators suggest that we have not yet reached the peak of the valuation bubble, and our simple TMT bubble math model shows that if a bubble is formed, the S&P 500 index will reach 6666 points."
So what is Kabra and de Boissezon's strategy?
They are still bullish on the technology sector and maintain an overweight position in the industry. They said:"However, as the profit cycle of companies outside the Nasdaq 100 index rises from -10% in 2023 to a potential +8% by the end of 2024, we have also identified cyclical opportunities outside the technology industry."
They said:"Therefore, rather than taking cyclical risks within the technology industry (where high-risk stocks have performed well), we suggest choosing financial and industrial stocks."
Editor/Jeffy