The S&P500 Trades At 23.5 Times Earnings And So Much Euphoria Causes Vertigo

Change of cycle to cyclical stocks to defensiveA Wall Street trader

T.C | From today until Thursday, companies representing 40% of the S&P500 will present their results for the first quarter of this year. Alphabet and Microsoft today, Tuesday. Apple and Facebook on Wednesday, Amazon on Thursday… and expectations are very high indeed. For example, in the case of Apple, a 32% advance in profits is discounted, while for Tesla, which presents on Tuesday, a 71% increase in both revenues and profits is expected.

A 100 companies have already presented their figures and 86% of them have beaten analysts’ expectations, which, unlike in previous quarters, have been rising as the first quarter report date approaches. This explains why the US stock market remains at record highs. And why at the close of trading last Friday the S&P500 was trading at 23.5 times expected earnings for the next twelve months (last year it traded at 27 times but the historical average is 16 times).

With this data, it is not surprising investors are starting to get vertigo. According to Bank of America’s SSI index, which basically measures the optimism of US managers in view of the recommended allocation to equities in a portfolio, it stood at 59.2 at the beginning of April (when experts believe that figures above 60 are a sell signal). And the levels of panic/euphoria are reminiscent of 1999, the period before the dot com crisis. That said, it is unlikely the Fed will take interest rates to 6.5% as it did in 2000.

The result of this caution is the turnaround seen in fund flows. Last week, according to Lipper data, money funds received inflows of $15 billion worldwide, when a week earlier they had accumulated outflows of $50 billion. In the US, net inflows into money market funds were $17 billion. Meanwhile, inflows into equity funds were the lowest in seven weeks at $0.8 billion.

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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.