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Investors wonder how much gas is left after another great year of the US stock market

Luis Klauskov / New York

The U.S. stock market is set to achieve annual earnings of 3 petes, but similar performance in 2022 is likely due to the more hawkish Federal Reserve, slowing earnings growth, and It can be threatened by constant pandemics.
With just over a week left, the S & P 500 is aiming for an 87% increase from the end of 2018, showing the best three-year performance in over 20 years. The benchmark index has risen 25% so far in 2021 after double-digit returns over the last two years.
If history is the guide, next year’s profits aren’t necessarily poor, but they may not be so impressive.
According to Jessica Rabe, co-founder of DataTrek Research, the S & P 500 has recorded double-digit returns for the third consecutive year since 1928.
According to DataTrek, profits for the following year during these periods were weak on average, with an average index of 8.4% and an overall average total return of 11.6%. Stock prices have risen in five of the last nine years and have fallen in the remaining four years.
“It’s a coin toss that this kind of positive momentum could be carried over to next year,” Rabe told Reuters in an email. “But the positive returns in the fourth year were much larger than the negative returns, so S & P’s performance proved to be historically asymmetric.”
A Reuters strategist poll earlier this month predicts that the S & P 500 will end at 4,910 in 2022, up 4.5% from Wednesday’s closing price.
The Fed’s three rate hikes in 2022 are a more aggressive path for the market than expected a few weeks ago and will come to investors’ minds.
However, economic growth, which is urging central banks to raise interest rates, could also help raise stocks. According to a survey of Deutsche Bank’s 13 hiking cycles since 1955, the S & P 500 returned an average of 7.7% in the first year the Fed raised rates.
“We can’t expect the rise for equity investors in 2022, but we still see the right environment,” said James Lagan, Wealth Management Research Director at DA Davidson. .. Growth of S & P500 in 2022.
Ragan prefers sectors that particularly benefit from strong economies such as finance, industry and raw materials, as well as companies that can pass on price increases in an inflationary environment.
“The overall GDP growth environment is still good and companies should still be able to grow their bottom line, but we’re concerned about valuation,” Ragan said.
As expected corporate cash flows are discounted at higher rates in standard equity valuation models, rising bond yields, which tend to accompany higher rates, could put pressure on already growing equity valuations. I have.
According to Refinitiv Datastream, the S & P 500 is trading at about 21 times its 12-month earnings forecast, compared to its historical average of 15.5 times.
According to Refinitiv IBES, strong earnings could still boost the equity case, but profits for S & P 500 companies are expected to recover by almost 50% in 2021 and then increase by 8.3% next year.
Michael Alone, Chief Investment Strategist at State Street Global Advisors, said:
As Omicron variants are established around the world, earnings are also clouded by Covid-19 uncertainties. Investors suspect that the broader U.S. government blockade associated with the virus will be revived, according to a recent note by Oxford Economics, but consumers are “more cautious in the new surge in Covid infections. There is a possibility. ” Growth of 8.1% this year.
Another wildcard for investors is the US midterm elections in November, where President Joe Biden’s Democratic Party domination of Congress is considered sparse.
It remains to be seen if technology and growth stocks, which have been leading the US market for the past decade, will be able to maintain their strength. For example, the valuation of these stocks is highly dependent on future earnings, so they are particularly sensitive to higher yields.
If huge growth stocks slump, a wider market can be a problem. According to Tuesday’s closing price, profits from six companies (Microsoft Corp, Apple Inc, Google’s parent company Alphabet Inc, Nvidia Corp, Tesla Inc, Meta Platforms Inc, formerly Facebook) will be about the total revenue of the S & P 500 in 2021. It occupied one-third. Howard SilverBlat, Senior Index Analyst at S & P Dow Jones Index.
Andre Bakhos, Managing Director of New Vines Capital LLC in Bernardsville, NJ, said: “The nature and design of S & P will probably lower the market.” — Reuters

http://www.gulf-times.com/story/706875/After-another-stunning-US-stock-market-year-invest Investors wonder how much gas is left after another great year of the US stock market

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