After experiencing a wave of valuation killings, the US stock market is poised for a major rebound before the end of the year.

Most of the performance data of large US tech companies has been released, and some of them have even exceeded Wall Street analysts' expectations in terms of revenue and profit. However, the bad news is that the outlook for the fourth quarter performance seems to have dimmed.

The performance expectations provided by Apple (AAPL.US), Google's parent company Alphabet (GOOGL.US), Facebook and Instagram's parent company Meta Platforms (META.US), as well as the comments from executives on future development, have given investors reason to worry about future growth prospects.

From Alphabet's sluggish cloud computing sales to Meta Platforms' emphasis on the vulnerability of performance to macroeconomic fluctuations, and Apple's weak outlook for the holiday shopping season, a key word repeatedly demonstrated by these large tech companies is caution. Meta warned that the performance for the next year seems difficult to predict, mainly due to the macroeconomic fluctuations affecting the advertising business, while Tesla is concerned about the weakening global demand for electric vehicles.

The dim outlook of the tech giants has caused a wave of devaluation in the US stock market.

Although the Nasdaq 100 Stock Index, the global tech stock benchmark, rose 6.5% last week, marking the best weekly performance in a year, the above situation still makes investors anxious.

Scott Colyer, CEO of Advisors Asset Management, said, "All of this is closely related to the very weak future performance guidance." "The pricing of large tech stocks has reached a historically perfect level, so investors are disappointed after the poor performance outlook of these companies."

Tech stocks now seem to be on the verge of collapse, with the stock prices of the seven major US tech giants such as Apple and Google averaging a drop of about 9% from their 52-week highs. The market value of Apple alone has lost more than $300 billion. Since Apple, Google, and other large tech giants have a high weight in the S&P 500 Index, from the official start of the US stock earnings season in mid-October to the end of October, the S&P 500 Index has fallen by nearly 5%.

The recent wave of sell-offs has dragged down the overall valuation of large tech companies, but the valuation is still relatively high. Moreover, due to the uncertainty of future performance expansion, some cautious investors seem reluctant to buy these stocks. According to data compiled by institutions, the average expected price-to-earnings ratio of the "seven major tech giants" in the S&P 500 Index is about 31x, which is nearly twice the overall expected price-to-earnings ratio of the other 493 constituent stocks in the index.

According to data compiled by Bloomberg Intelligence, the "Big Seven Tech Giants" with the highest market capitalization in the S&P 500 index - Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla - are expected to see a 50% YoY increase in overall profits in the third quarter.

Although Tesla failed to meet performance expectations, the data for the remaining time of the year for this electric vehicle leader may exceed the projected 36% profit growth rate before the start of the earnings season. Nvidia is the last of the Big Seven Tech Giants to announce its performance and may have the strongest profit growth among the tech giants, potentially instantly boosting the overall performance growth rate of the Big Seven. The company will release its earnings report on November 21st, Eastern Time.

The profit growth rate of the Big Seven Tech Giants in 2024 is expected to slow down - the gap in profit growth with other companies is expected to narrow.

Will the US stock market experience a wave of growth after the valuation kill?

According to Keith Lerner, Chief Investment Officer at Truist Advisory Services, the performance pressure faced by large tech companies indicates that the adjustment period for the S&P 500 index is nearing its end, laying an important foundation for outstanding performance in the last two months of the year. Historical data shows that these two months are often the best performing period for the US stock market.

He said, "We are in a better market seasonality period, with stabilized interest rates, mixed economic data, and optimistic news in the field of artificial intelligence, which is an important force driving the rebound of the US stock market." "Some investors have performed poorly in terms of profits, partly because they missed the rise of large tech stocks earlier this year. I think we may see some investors chasing tech stocks by the end of the year due to concerns about falling behind in profits again."

Of course, according to data compiled by Bloomberg Intelligence, based on the expected price-earnings ratio, technology stocks in the S&P 500 index still have a valuation premium of nearly 36% compared to the index.

This is why Colyer, CEO of Advisors Asset Management, believes that large growth stocks with overvalued valuations will continue to suffer in the future. His company chooses to hold Microsoft stocks, betting that Microsoft's massive investment in artificial intelligence is paying off. It is worth noting that Microsoft is one of the few companies among the "Big Seven Tech Giants" in the US stock market whose Q3 performance and outlook far exceeded expectations.

"The frenzy of investments related to artificial intelligence is still ongoing, but not every company is market-ready," he added. "The US stock market may rebound before the end of the year, but I wouldn't say it's a sure thing for tech stocks or the entire market."After three consecutive months of decline in the S&P 500 index, the index recorded one of its best weekly performances since 2023. Prior to this, the Federal Reserve hinted that the rise in long-term US Treasury yields could weaken the momentum for further rate hikes. In addition, the continued increase in initial jobless claims and weak non-farm data have boosted expectations of a peak in interest rates. Interest rate futures traders have even raised their expectations for a rate cut from July next year to June.

With the arrival of the US stock earnings season, the bulls who are hoping for a rebound in the US stock market before the end of the year have reasons to remain optimistic. The overall profits of the S&P 500 index constituent companies are expected to narrow their decline in the third quarter and start a strong rebound in the fourth quarter. Historical data also shows that there is often a high possibility of actual performance exceeding expectations. In the past 30 years, historical data shows that about 60% of S&P 500 index constituent companies have reported earnings per share that exceed analysts' expectations in a certain quarter. Recent statistics show that this proportion has remained around 80% since the beginning of 2021.

Expected data compiled by Bloomberg Intelligence shows that Wall Street analysts generally expect the overall earnings per share (EPS) of the S&P 500 index to enter an upward trend and may resume a high growth path of up to 10% starting next year. For a stock market that persistently looks to the future, one of the key reasons for optimism is that corporate profit levels are expected to recover and grow from Q4 this year. This is also an important logic supporting the high valuations of large technology stocks such as NVIDIA, Tesla, and Meta.

Capital Group, a giant asset management company with $2.3 trillion in assets under management, believes that the Federal Reserve's decision to maintain interest rates and its indication that its aggressive tightening cycle is ending has created an opportunity for investors to buy global stocks. Winnie Kwan, a portfolio manager at the company, said that after interest rates peak, "the differentiation between asset classes, cash, fixed income, and equities will be most significant." According to Capital Group's analysis of the past four tightening cycles, the average return of global stock markets in US dollars exceeded 12% in the 12 months after the last rate hike by the Federal Reserve. In comparison, the return rate of global bonds was about 6%, and the return rate of cash was about 4%.

However, the struggle between technology stocks and US bond yields may continue in the coming weeks, which could harm investors who have recently increased their positions in US large technology companies due to the decline in yields.

Max Wasserman, Senior Portfolio Manager at Miramar Capital, said, "If there is economic or geopolitical turmoil, everything could change in an instant, which could directly affect those technology stocks that have overly concentrated positions and easily trigger a stampede.""So be cautious and don't be too optimistic about the future rise of those large tech companies."

Bank of America: Technical factors no longer hinder the rebound of the S&P 500 index at the end of the year

Michael Hartnett, the strategist at Bank of America known as "Wall Street's most accurate strategist," recently published a report stating that technical factors no longer hinder the rebound of the S&P 500 index at the end of the year, but there is still uncertainty in the medium to long term for US stocks. Hartnett, who has been pessimistic about risk assets this year, pointed out that with oil prices below $100 per barrel, bond yields below 5%, and the S&P 500 index above 4200 points, positions may rise again. "But please note that now everyone expects a significant rebound at the end of the year," he added.

In the report, the strategist wrote that the Bank of America's internal sentiment indicator, the "Bull & Bear Indicator," has issued a contrarian buy signal for three consecutive weeks, amid poor market breadth (referring to the number of rising stocks), large outflows from high-yield bonds and emerging market bonds.

Hartnett stated that due to the market being too bearish, the contrarian buy signal for risk assets has been triggered, and based on historical experience, when the market is extremely pessimistic, the actual upward momentum is brewing.

According to Hartnett's strategy team, the timing for a tactical rebound in US stocks may be before the end of the year. Currently, Bank of America's three indicators suggest "contrarian buying" signals: Bank of America's Bull & Bear Indicator at 1.4 (below 2%); cash levels in Bank of America's Global Fund Manager Survey (FMS) are around 5.5% (above 5%); Bank of America's redemption assets under management in the past few weeks at 1.1% (above 1%).