US indices are again near highs

Global markets have had a busy few weeks. In late June and early July, the US indices passed their own historical highs almost with an iron rule. The most famous stock index S&P 500 closed at the highest level on July 16 with 5667.2 points. This represented a growth of almost 19 percent since the beginning of the year. This was followed by a small decline, which turned into a big sell-off at the beginning of August, which can be linked to the release of negative macro data from the US labor market.

The data came just two days after the Fed left rates unchanged, raising concerns that too high rates are stifling the economy. So the market changed its expectations for American interest rates down, on the other hand, the Japanese central bank unexpectedly raised interest rates, which, among other things, started to liquidate carry trades between the yen Japanese and the American dollar and caused a great disturbance in the market.

On Monday, August 5, Japan’s Nikkei index fell 12.4 percent, the second biggest one-day drop in history. The day after, on the other hand, it grew more than 10 percent. The S&P 500 fell 3 percent on the day announced, although it was down more than 4 percent during the trading session, and closed 8.5 percent lower from its highs . But macroeconomic data over the next few days temporarily put fears to rest, and the S&P 500 is only 2 percent off its all-time highs after its best week since the start of the year , when it added 3.9 percent.

The current forward value of the ratio of company profits to the S&P 500 share price P/E for this year is about 22.5x. This is a significantly higher value than the average, and experience suggests that the return of the index may be low in the next period. The only risk in this situation is a revaluation to more historically common values ​​of around fifteen times profit. In this situation, when the soft landing of the US economy remains a question mark, it may be time to shift your attention from the entire US market to some specific stocks so far free from non-circular regions.

The author is an analyst at Česká spořitelna