The euphoria of Wall Street suggests that this may be another bubble than market mania. They do not tend to end well. That runs this rally on steam?
There are growing concerns about the fact that equities continue to hold higher, even as the world economy continues to plunge into recession.
The labor market in the United States is far from pre-pandemic levels – even though there are some slow signs of improvement.
The UK’s economic downturn is particularly painful. En JPMorgan Chase (JPM) CEO Jamie Dimon said in a recent interview with Christine Romans of CNN that the rise of the market does not reflect the harsh economic reality that many people face.
That makes it even more critical for the White House and Democratic leaders in Congress to reach an agreement on more incentives.
“The U.S. labor market is showing steady signs of stabilizing, but referring to it as ‘cured’ is a bit of a stretch,” Samuel Rines, chief economist at Avalon Investment and Advisory, said in a report.
“The economic consequences of this level of unemployment have not been fully felt by the economy due to the significant transfer payments from the government,” Rines added. “If the ‘surge’ payments go away, the US economy will feel the pain more acutely.”
It is also worth noting that income – to be blunt – has been terrible.
Profits for companies in the S&P 500 fell nearly 34% in the second quarter, according to FactSet analyst Marc Evans. That was the worst drip in five years. And sales fell nearly 9%, the largest decline in nearly four years.
Evans also notes that revenue for the S&P 500 is expected to fall nearly 19% this year, compared to an expected drop of only 1.2% back in March.
Add all this and you have a market that seems to be getting too hot, according to Stifel head of institutional equity strategy Barry Bannister. He wrote in a recent report that the S&P 500 may currently be overvalued by a maximum of 10%.
Bannister worries that investors are underestimating the risk of another rise in coronavirus cases, leading to more damage to the labor market and profit growth later this year. He also believes that revenue estimates for 2021 are too high and should be revised downwards.
For now, tech stocks like Call (AAPL), Amazon (AMZN) en Microsoft (MSFT) have continued to strengthen the market higher by propelling. But that can not last forever. And even quality companies can become too expensive.
“Ratings for the S&P 500 have kept us up all night,” warned RBC Capital Markets chief executive of US stock strategy Lori Calvasina in a report, adding that the recent run for tech stocks is reminiscent of the dot-com bubble in ‘ the Nasdaq 20 years ago.
All eyes on Chinese consumers
Chinese consumers, like everyone else around the world, shop more online and on their phones. That should be good news for homegrown e-commerce giants Alibaba (BABY) en JD.com (JD), who are both reporting their second-quarter earnings.
One of their rivals, Pinduoduo (PDD), whose shares have more than doubled this year, will also release its latest results.
Shares of JD rose 75% in 2020, while Alibaba’s share is around 20% year to date. The Chinese economy recovered in the second quarter after a sharp contraction in the first three months of the year as a result of coronavirus.
Analysts predict a growth of almost 30% in sales for JD from a year ago, while revenue at Alibaba is expected to increase by almost 50%.
But while investors are cheering the comeback of Chinese consumers and a broader economy, there are concerns that Alibaba could become the next target of President Donald Trump’s war against Chinese tech companies.
The United States has already announced announcements on TikTok, the popular social media app owned by China’s ByteDance, as well as a ban on Tencent’s WeChat. And now the U.S. Securities and Exchange Commission is looking into it Baidu’s (BIDU) video streaming unit iQiyi (IQ)for suspected fraud.
Trump wants ByteDance to sell TikTok’s US assets. Microsoft (MSFT) has confirmed that this has been discussed with the President and there have been rumors as well Twitter (TWTR) may be interested in a deal.
Next
Monday: JD.com revenue
Tuesday: Walmart (WMT) en Home Depot (HD) earnings; U.S. housing starts and building permits
Wednesday: Lowe’s (LEECH), Purpose (TGT), L Brands (LB) en Nvidia (NVDA) earnings; Fed the minute
Thursday: Alibaba Revenue; Weekly claims of American unemployed
Friday: Deere (DE), Foot Locker (FL) and Pinduoduo revenue; US existing home sales
.
