At this point, some analysts begin to have some doubts that excess prices are being created on the American market. Is the US Exchange at risk of a speculative bubble burst? Here’s what you should do.
Is the US Exchange at risk of a speculative bubble burst?
There is growing debate among analysts as to why the US stock market has been pushing for two months, totally ignoring macroeconomic data. It is true that the latest employment figures on Friday 5 June showed a recovery in jobs of 2.2 and a half million. But it is also true that unemployment remains at 14%. Furthermore, the 4.8% drop in GDP in the first quarter is not so encouraging. But Wall Street completely ignores the macroeconomic data, the recession, the drop in employment.
From the March lows, prices have risen by about 40%. Are we on the threshold of a speculative bubble? An American company specialized in the processing of financial data has tried to answer this question. Factset asked a panel of analysts. The result has been that analysts for 2020 predict that the profits of the companies listed on the S & P500 (US500) will drop by 43% on 2019. But for the next year they estimate an average earnings per share up by 28%
Moody’s un encouraging study
For a correct evaluation of the market values, in a study Moody’s took as reference iI core profit of all American companies. He also considered those not listed on the S & P500. The core profit is corporate profits that are cleared of extraordinary gains and losses.
Moody’s study notes that equity drops have always followed deep year-over-year earnings after taxes. And he takes as an example what happened in 2008 when the core profits of the American stocks fell by 9.8%. Well, at the end of 2008 the US stock market lost 38.7% compared to December 31, 2007.
If the analysts interviewed by Factset are right, there is a risk that the same scenario will repeat itself again this year.
What should an investor do now?
What should an investor do at this point? Definitely bandaging your head before breaking it is not a winning strategy. The idea always remains to follow the market. If you have investments in US equities, for now it is better to follow the trend. At this moment there are no imminent signs of a turnaround. Wall Street is very likely to hit historic highs in the next few sessions.
However reaching this quota could push someone to sell to monetize the earnings of the previous weeks. And therefore one could witness a correction, decided even if not profound. And then the latecomers, those who have not yet entered the market, can take advantage of this correction to enter the stock at cheaper prices.