USA - investors are proving hard to please.
Almost half of S&P 500 companies have now published their quarterly earnings. Last week was a particularly busy one, and it’s safe to say that Q1 2024 was very good for Corporate America. Even though expectations were high, more than 80% of companies beat the consensus forecasts – and not by any trivial amount. On average, earnings per share came in 9% higher than analysts’ forecasts, a level rarely seen in recent history. Yet investors reacted relatively coolly to this good news, taking profits across the board.
But stock market indexes did end the week in positive territory, with the S&P 500 gaining ground after consolidating for three weeks. The rise was driven mainly by the stellar results published by Microsoft and Alphabet, two tech heavyweights with AI exposure.
While the market has gained considerable ground, we think it’s too early to say that the recent consolidation is over. Although investor sentiment indicators have dropped off, the same can’t be said of US stock valuations, with P/E ratios still firmly above the 20 mark. This multiple can be justified in part by the impressive resilience of the US economy, and by expectations of an upcoming easing of monetary policy by the Fed. However, that easing is increasingly hypothetical, as inflation seems to have levelled off at a rate that’s above Jerome Powell’s comfort zone. If interest rates stay high for a prolonged period, it will be harder for US stock market multiples to keep rising.
As we head into a season that’s less favourable to equities, it’s understandable that investors are showing caution. But there’s no need for alarm. Despite surprisingly weak Q1 GDP growth – which came in at 1.6%, well below the 2.5% forecast – the latest earnings reports show that the US economy is robust. Consumer spending is still solid, default rates on credit cards remain low and companies are increasingly profitable, which means they can invest massively in their growth, whether that’s in the cloud, AI, marketing or advertising.
We’re therefore still taking a constructive stance on US equities, although we think they’re generously valued, which limits their upside in the short term.
China – market rally goes unnoticed
Last week, a nearly 10% rebound in China-linked tech and property indexes prompted a rally on the Chinese stock exchange, which became one of the only markets to put in a positive performance in a tough month for equities. The rebound was nearly overlooked, with most investors focused on US tech giants’ earnings reports. The strong January correction, an increasingly strong US dollar and no sign of any easing in US-China tensions meant that only the most patient investors had kept their positions in China. The rebound was probably spurred by the attractive valuations on offer and still very bearish sentiment, even though there are growing signs that the Chinese economy is stabilising. While the property sector is still weighing on the recovery, optimism among some investors has been revived by a string of initiatives introduced by the authorities. The rally looks set to continue in the short term. However, uncertainty about the US presidential election remains a risk and could prevent the still-bearish sentiment from improving over the next six months.
This week's figure : USD 10,000
This is the price that copper hit on the London Metal Exchange, reaching a two-year high and nearing its record level as supply fell short of expectations.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
