27 mei 2022
08:24
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A typical phenomenon: sales are less likely to attract buyers on Wall Street than on Main Street.
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It is an iron law of investors: stocks are snob† If they have just become 20 percent more expensive, buyers are standing in rows. If they have become a fifth cheaper, the floor remains empty.
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Wall Street has certainly not been this cheap in years, the investment bank JPMorgan points out. While the S&P 500 (the most influential broad stock barometer on Wall Street, ed.) since the peak in January was discounted 20 percent, earnings expectations for 2022 and 2023 have increased by 3 percent,” writes equity strategist Dubravko Lakos-Bujas.
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As a result, Wall Street is trading at 16 times expected earnings for the coming year. That’s less than the long-term average of 16.5 and a quarter cheaper than January, when investors paid 22 times expected earnings for the S&P basket.
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Any scenario where a US recession is avoided will completely mislead investors.
Dubravko Lakos-Bujas
JPMorgan Strategist
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And that’s still an overestimation, says Lakos-Bujas. “Outside the financial sector, the companies in the S&P 500 are sitting on $1,900 billion in cash. If we subtract that from the stock market value, Wall Street is trading at just well 15 times the expected profit.’
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Of course, the lower valuation stems from fears of a recession. But that fear has become extreme, according to the strategist. “Any scenario where a US recession is avoided will completely mislead investors.”
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The extreme fear has led to an extreme sell-off, which is sometimes literally only half reflected in the stock barometers. The median share of the Nasdaq has lost 51 percent of its value in the past 12 months, compared to ‘only’ 30 percent for the Nasdaq. The same goes for the Russell3000, the basket of the 3,000 largest stocks on Wall Street. The median share there lost exactly double (-42%) of the index itself (-21%).
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The reason is that the major stocks that dominate the barometers, such as Apple, held up relatively better. And that’s partly thanks to one big buyer – also here with Apple in the lead – who slowed down the sales wave: the companies themselves. S&P 500 companies are expected to repurchase $600 billion of their own shares this six months. A record’, points out Lakos-Bujas.
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This purchase has somewhat ‘camouflaged’ the extreme size and breadth of the sales wave. The strategist illustrates this with an overview of the returns of various baskets of shares over the past twelve months, with each basket allowing investors to enter or exit an investment strategy with a single mouse click.
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Well, no strategy turned out to be worthwhile (see Table† Anyone who bet on growth or green lost about half of their investment. But all other strategies also guaranteed losses. Winners or losers of the reopening, winners or losers of the expensive oil: no strategy proved to be profitable in the unforgiving climate.
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