(BFM Bourse) – As records rain on Wall Street and Donald Trump makes an argument for his re-election, experts are wondering about the valuation levels reached by certain indices during a pandemic. Does the stock market still reflect the real economy? Response elements.
It has once again become the favorite curve of Donald Trump and his vice-president Mike Pence: Wall Street broke historic records this week while the American and world economies are in tatters in the midst of the Covid-19 pandemic. “It’s the great comeback of the United States!” Mike Pence tweeted again on Tuesday, citing the all-time high reached on the S&P 500 index, which includes the 500 largest listed companies in the United States. The Nasdaq has been setting records for weeks.
Far from the self-righteousness of the leaders, why, while every day still brings its share of recessions, double-digit unemployment rate, and social plans, does the American stock market smile so much? The traditional maxim “the stock market is not the economy”, used during stock market surges and plunges, resonates in people’s minds while such a shift questions a form of indecency in financial markets.
“It is indecent at a moment T because there is a misunderstanding in relation to this disconnection. But this reflects the operation of investors who make bets on the long term”, analyzes Christopher Dembik, head of economic research at Saxo Bank .
This long term looks rosier for US companies: earnings forecasts for companies making up the S&P 500 index have been revised upwards for 2020 after falling sharply, according to Factset, and could be even lower in 2020. 2021.
American tech is on the rise
Many of them have already presented figures above expectations in the second quarter, marked by containment. But in the era of teleworking, streaming and excessive social networks, the thinning does not radiate everywhere: it is the international technological stars who capture all the light, leaving crumbs to other disaster-stricken sectors.
Apple for example presented a net profit of 11 billion dollars between April and June. The price of its share has doubled since March and the firm at the apple surpassed $ 2,000 billion on Wednesday value on the stock market, unheard of on Wall Street.
Logically, the distortion is widening: technology companies represented nearly 20% of the S&P 500 index in 2016, they now weigh a third, calculates Nicholas Colas, co-founder of the American company DataTrek Research. “Whether these tech companies are at their peak is the multi-billion question,” said Richard Hunter of Interactive Investor.
It is permissible to doubt it. Because not only have these companies passed between the drops of the crisis but investors are tempted to continue betting on them, protected by the benevolent umbrella of the American Central Bank, with its rates close to 0% and loan programs to help businesses and communities. They “remain convinced that the Fed is never going to let the worst-case scenario happen,” said Patrick O’Hare, chief analyst for Briefing.
Wall Street sucks up global savings
In its wake, Congress adopted in March a gigantic aid plan of 2.2 trillion dollars, supplemented in April by another plan of almost 500 billion. A new one is under discussion. What to encourage investors to bet on increasingly risky assets in order to obtain a return.
Elsewhere in the world, no financial center can compete with Wall Street. “All the surpluses are systematically channeled to go to the American market in times of crisis, they do not go to Asia or Europe”, explains Christopher Dembik. Two indices stand out, however: the Nikkei in Japan, very technological, and the German Dax, the two again making their historic highs close to each other.
Europe is also “lagging behind” due to the sharp rise ineuro, which in recent days has reached a high in two years against the dollar and therefore handicaps European exporting companies, underlines Daniel Larrouturou, equity manager for Dôm Finance.
Will Wall Street end up making Americans smile? A Fed study shows that just over half of them own stocks, and these are mostly concentrated in the hands of the richest 10%.
(with AFP)
Quentin Soubranne – ©2020 BFM Bourse
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