Source: Zhitong Finance
Although the current high valuation of the US stock market reflects that investor enthusiasm is already quite high, this does not constitute a reason for an immediate sell-off.
Goldman Sachs Group's latest analysis shows that although the current high valuation of the US stock market reflects that investors' enthusiasm is already quite high, this does not constitute a reason for an immediate sell-off. Ben Snyder, a senior strategist on the bank's US portfolio strategy team, pointed out in an interview that although the S&P 500 index has exceeded Goldman Sachs's year-end target of 5,200 points, the fundamentals of the stock market are still “very healthy” considering the strong profits of US companies and confidence in the path of deflation.
Snyder stressed that the current market situation shows that the upside risk seems to outweigh the downside risk. Both he and chief US equity strategist David Costin are optimistic about the long-term outlook for the stock market, even though they forecast relatively limited earnings growth in 2024. Snyder made it clear that for investors who currently hold shares, they are not recommending an immediate sale.
Currently, the US stock market is at a critical turning point. Traders are looking for a possible next market catalyst, which may appear when the government releases the latest consumer price index this Wednesday. Options market data suggests that traders expect that the stock market may experience large fluctuations of close to 1% on the day the data is released.
According to information, thanks to positive earnings reports, the S&P 500 index has recovered most of its losses from last month's sharp decline. However, the index met resistance near its March high, and investors are puzzled as to whether there is room for further growth in the market after experiencing a strong rise of nearly 27% since the end of October, especially as the Federal Reserve suggests that interest rates may remain high over the next few months.
Snyder believes that although inflation and interest rates are hot topics of market discussion, the “key point” for 2024 is the strength of the US economy and corporate profits. He mentioned that Goldman Sachs' economists' GDP predictions have exceeded market consensus, which is one of the reasons Goldman Sachs has raised the S&P 500 profit forecast and year-end price target twice since the end of last year. Goldman Sachs first raised its share capital benchmark forecast from 4,700 points to 5,100 points, then further raised it to 5,200 points. Meanwhile, earnings per share forecasts for 2025 were also raised from $237 and $250 to $241 and $256.
Snyder also pointed out that the possibility that profits will exceed expectations is a clear upward risk, which may lead to a further increase in profit forecasts. He mentioned that Goldman Sachs's decades-long data shows that profits exceed analysts' expectations are at an all-time high, which makes people think. Looking back a few months later, you may realize that profit predictions are still too conservative.
According to forecasts, the S&P 500's earnings in the first quarter are expected to grow by 7.1%, which exceeds analysts' pre-quarter expectations of 3.8%. Snyder believes that even if the S&P index remains unchanged for the rest of the year, different sectors of the market still provide rich opportunities for investors.
For example, the expansion of artificial intelligence technology may spread from a few semiconductor companies to data center and technology hardware companies, providing an appeal for stock selectors. Furthermore, compared to large-cap stocks, mid-cap stocks have a relatively low valuation, providing investors with a good opportunity to “catch up”.
By contrast, Barry Bannister, Stifel's chief stock strategist, is particularly cautious. For a long time, Bannister had doubts about whether the market could continue to rise under the influence of high interest rates and other headwinds. His predictions have been accurate many times in the past, especially with regard to the trend of the S&P 500 last year and the timing of the Federal Reserve's interest rate cut — it is unlikely to cut interest rates in the first half of this year.
Bannister pointed out in a report released on Monday that this doesn't mean it's safe. He expects the S&P 500 index to drop to around 4,750 points in the second or third quarter, down more than 9% from 5222 points at the close of last Friday.
Although many strategists are discussing the debate between a soft landing and no landing, or trying to predict a recession, Bannister believes that about five quarters from early 2022 to mid-2023 is a “fake recession”
Given the sharp rebound in the market since then, investors may be anxious to see this as a thing of the past. Bannister believes the problem is that if this is the case — there is a quasi-recession — then the Fed's progress on inflation is actually just about all the normal post-recession deflation expected.