The stock market will return to economic realities?

14.05.2020 11:38|Conotoxia Ltd Analyst Team

Thanks to unprecedented support of the economy from central banks or governments and fiscal spending, the stock market remains at relatively high levels compared to macroeconomic data. These levels seem to be high in relation to the current share price to potential future corporate profits. The forward P/E ratio for the S&P 500 index indicates that stocks are the most expensive since 1999.

Famous Wall Street personalities are starting to talk more and more loudly about the fact that currently, the potential risk to profit in the stock market is the highest in history, and valuations are not favourable. There are comments from two leading investors, Stanley Druckenmiller and David Tepper. Their opinions may have influenced the mood of investors. Therefore, if someone is currently purchasing shares or financial instruments based on stock indices, they must be aware of the relatively high risk and valuation of companies. Futures contracts for American indices on Thursday oscillate around levels from yesterday's closing.

Hopes for a rapid economic recovery have also weakened after President Fed Jerome Powell warned that the current recession is worse than any since World War II. The head of the Fed pledged to provide additional monetary stimulus if needed and called for further fiscal measures to support the US economy. Powell ruled out the possibility of introducing negative interest rates in the United States at this point.

Stock markets across Europe seem to be declining, and the German DAX has fallen by more than 1% due to growing concerns about a second wave of coronavirus infections following the opening of economies in several countries. Meanwhile, in France, CAC 40 fell by more than 2 percent on Thursday, increasing losses for the fourth consecutive session. All this after the result of a study by the Pasteur Institute published in the journal Science showed that 4.4% of the French population had a new coronavirus disease (COVID-19). The conclusion of the study is that herd immunity is not enough to avoid a second wave of infections.

Therefore, it seems that after the wave of optimism, which has been going on on the stock market since mid-March, there may come a time of cool calculations and verification of the last rebound in relation to economic reality and companies' results.

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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71.98% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71.98% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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