Will U.S. Stocks Continue to Rise, or Will a Decline Begin?
The Standard & Poor’s 500 index closed above 5000 points for the first time in its history last week
, and it seems to be stabilizing at this level so far,
despite concerns about excessively high valuations, causing unease among investors.
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The current price-to-earnings ratio for the S&P 500 index is around 20, much higher than the historical average of about 16.
However, there is a widespread belief that there is significant room for improvement in the U.S. markets,
with expectations that the S&P 500 index will surpass the 5500 level by the end of the year and reach 6500 by the end of 2025.
The current upward trend bears some resemblance to the dot-com bubble of the late ’90s.
The bubble forming in the S&P 500 index shares similarities with the one formed in the second half of the ’90s in several aspects,
including the exploitation of future benefits of transformative technology.
Valuations are still much higher than that time, indicating the possibility of further growth.
It is noteworthy that the current price-to-expected-earnings ratio for the S&P 500 index, currently exceeding 20,
reached its highest levels at 25 during the technology bubble.
If we exclude the “Fabulous Seven,” namely Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla,
the rest of the market remains at relatively lower prices, suggesting the potential for the recovery to expand further.
On the other hand, in yesterday’s Federal Reserve meeting, members noted the strong pace of economic activity and the continued strength of the labor market,
despite a slowdown in job gains since the beginning of last year. The unemployment rate remained low.
Generally, Fed members indicated that a reduction in interest rates is not expected at the moment until confidence in stable inflation
and achieving a sustainable 2% rate is strengthened.
They emphasized that future monetary policy depends on economic data, future expectations, and risk balance.
Most Fed members spoke about the importance of exercising caution in swiftly moving towards easing monetary policy and reducing interest rates,
stressing the need for accurate evaluation of economic data to assess the stability of inflation in reaching the targeted 2%.
Will U.S. Stocks Continue to Rise, or Will a Decline Begin?