Equities are currently at record levels of popularity in the US. There are almost certainly darker times ahead if we look at the return potential years from now.
Turnarounds cannot be predicted, but they can be prepared for. While we don't know where the peaks will eventually occur, we can try to sense where we stand in the cycle now.
Investing in equities requires optimism, because the present value of listed companies is based on their future cash flows. The challenge is that change in particular is extremely difficult to predict reliably. In practice, most predictions go totally awry.
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The increasingly expensive stock market demands steep earnings growth, while interest rates, which offer an alternative to equities, are also hovering at attractive levels. The US earnings slump ended in the fall of 2023, and now the focus is on finding signs of accelerating growth.
Fed rate cuts are of little importance to investors because they do not directly drive stocks. In practice, the return potential of stocks is measured against the risk-free interest rate on government bonds.
Nasdaq Helsinki has been stuck in a rut and has recently moved in line with expectations for policy rates. So you can see how a clear downward trend in interest rates would be positive for the Finnish home exchange. Apparently, a watched pot never boils.
While many investors are hunting for the AI boom winners, perhaps it might be worth asking yourself the next time you visit a gas station: what hidden winners can be found in boring industries?
As the Helsinki stock market continues to stagnate, more and more investors are turning their attention to the United States. There's been a real rally in the American stock markets: The Nasdaq technology index is up by 60% since the bear market bottom in December 2022. The S&P 500 has reached new highs. Although European stock markets have also performed reasonably well recently, Europe has lagged the U.S. significantly since the financial crisis.
The weak performance of Nasdaq Helsinki over the past 2.5 years is getting on investors' nerves. Especially considering that the global bull market started back in the fall of 2022. Nasdaq Helsinki may look cheap, but is it a value trap?
The US outperformance since the financial crisis has captured investors' attention. This is also reflected in the stock market valuations. But weaker economic growth in other parts of the world doesn't automatically mean that there are no gems to be found in other stock markets. And as we can learn from China, strong economic growth does not always automatically translate into a stock market boom.
"Financial oppression", i.e. a situation in which central banks manipulate interest rates (as in Japan), is not an unlikely scenario. Negative real interest rates and inflation help countries manage their debt. With inflation, the economy and tax revenues grow, but the nominal value of the debt remains the same.
One of the things I've been pondering lately is the rate of the future stock market recovery in Finland. During the pandemic, we saw a so-called V-shaped recovery, where the stock market fell sharply, but a mega-recovery quickly lifted share prices to new highs. The stock market loosely follows corporate results. If the outlook for companies remains bleak, the stock market will also suffer. Without earnings growth, there is no point in splurging on stocks.
Sampo Group delivered strong premium growth and resilient underwriting margins in 2023, despite the year being characterised by elevated severe weather and large claims experience, as well as unfavourable currency movements.
The S&P 500, the world's most important equity index, has had a good earnings season. Just under 80% of companies have exceeded analysts' expectations, average earnings growth has been around 7% and share price reactions to the results have been snappily positive, according to Bloomberg data.
In this post I will talk about the Fed's interest rate decision and move on to the credit cycle phase. The optimistic view is that a new credit cycle is about to start, fueling economic growth. Finally, I have some interesting data on how rising interest rates affect the profitability of US companies.
Tech companies fronted by AI hype superstars NVIDIA and Microsoft have scaled new heights. Microsoft became the first company in the world to break the $3 trillion mark. Many technology companies have risen by hundreds of percent over the past 18 months. The world's main stock index, the S&P 500, has surpassed the level it touched in early January 2022. At the time, there was widespread talk of a stock market bubble.
So it’s fair to ask whether we are in a bubble again.