The Standard and Poor’s 500 Index’ excessive optimism

MADRID | At Barclays Spain, analysts have spotted an oddity. They say that in the United States market participants seem to discount two elements that appear to be contradictory: on one hand, that the Federal Reserve will keep its expanding monetary policy going on for the time being, something that Ben Bernanke would have made clear last Monday; and on the other hand, that the US economy will grow above expectations.

“but the data continue to disappoint, and this is a factual finding, that’s why we have the index of surprises. Well, by our count, this index points out that the SPX should experience an appreciation of 4.3% compared to the 12.6% it carries during the year leading. “


Numbers do not fare much better when comparing the SPX’s behaviour against the estimates of quarterly or annual GDP.


Considering that Bloomberg consensus for Q1 2012 is 2%, Barclays analysts note that this would mean that the appreciation of the SPX should be of about 2.3% in the quarter, so here SPX profitability deviates by more than two standard notches from estimations.

“Basically, either the markets are wrong or analysts’ GDP estimates are wrong.

“This can be expressed in another way. Should the market stay put at current levels for the remainder of the year (according to our home-made calculations), the SPX index revaluation would at this time be consistent only with a annual GDP of about 3%, and this compares with an estimated GDP growth of 2.2% this year and 2.4% and 2.85% the next two years, ie, consensus does not see growth of 3% in the US in the coming years.”

Barclays experts remark that what is clear is that US stocks this quarter bear a record spike in price, and this could only be consistent with quarterly GDP growths of above 10%. This means the market is overflowing optimism.

“What did Bernanke say Monday that made markets feel so enthusiastic? Bernanke said that the improvement in recruitment could be due to reduced economic uncertainty and also a compensatory effect of the massive layoffs that occurred during the crisis. Thus, once this compensatory effect vanishes, economic growth should increase to continue the current level of recruitment. This has been interpreted as the confirmation that the Fed will maintain its monetary policy well into 2014.”

In conclusion, if the numbers and calculations from Barclays Spain are relatively correct, somebody out there is still unaware of the actual strength and weaknesses of the US economy.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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