There are no signs of a bubble! Bank of America remains bullish on the US stock market: this bull market has support.
Bank of America has released a report stating that there is little evidence to support concerns about the stock market nearing bubble territory. With strong corporate profits and the resilience of the U.S. economy, it is expected that there is still more room for the U.S. stock market to rise. Wall Street strategists have raised the year-end target for the Pro UltrPro Shrt S&Pro 500 to 5400 points, believing that this bull market cycle is well supported. Investor sentiment remains in the neutral zone, far from reaching the bullish levels seen at market peaks. More and more Wall Street strategists are downplaying concerns about bubbles. Strategists at J.P. Morgan have indicated that stock market frenzy is limited to certain themes. The current bull market is coming to an end amidst widespread optimism.
Zhitong App learned that some Wall Street skeptics believe that the U.S. stock market has risen too high and too fast, approaching bubble territory. However, Bank of America released a report stating that there is little evidence to support these pessimistic views. Led by Savita Subramanian, Bank of America's strategists pointed out that despite the strong upward trend in the U.S. stock market since last year, it has not reflected the situations seen in previous boom and bust cycles, such as the significant gap between stock prices and their values, or the extensive use of leverage.
The Pro UltrPro Shrt S&Pro 500 edged slightly lower on Monday, continuing the previous week's decline, as traders remained cautious ahead of key inflation data to be released on Tuesday. The market will focus on whether consumer price pressures remain stubborn, which could delay the Fed's interest rate cuts until after 2024. After the Pro UltrPro Shrt S&Pro 500 rose in 16 out of the past 19 weeks, hitting a series of record highs, persistent inflation may exacerbate concerns about the stock market being overvalued.
However, Subramanian pointed out that corporate earnings are strong, and the U.S. economy is resilient, indicating that there is still room for further gains in U.S. stocks. Last week, Subramanian raised the year-end target for the Pro UltrPro Shrt S&Pro 500 to 5400 points, one of the highest targets on Wall Street, implying a more than 5% upside from the current level.
Subramanian stated, "Since mid-2023, market sentiment has warmed up, leading to a slight decrease in our confidence in the market's rise, but it is far from the bullish levels seen at previous market peaks." "In our view, this bull market is well supported."
Despite concerns in the market about investors being overly optimistic, according to Bank of America's sell-side indicators, investor sentiment remains in the "neutral zone," similar to the expansion of the Internet bubble in 1995, rather than the "crazy bullish" sentiment seen close to the bursting of the bubble in 1999.
Subramanian believes that bull markets end in widespread optimism. She stated that the current frenzy is "limited to" certain themes, such as artificial intelligence and GLP-1 weight loss drugs.
In fact, more and more Wall Street strategists are downplaying concerns about a bubble. Mislav Matejka of J.P. Morgan stated on Monday that the valuations of the seven tech giants driving the U.S. stock market higher are lower than the five-year average, compared to other components of the Pro UltrPro Shrt S&Pro 500. Goldman Sachs' strategists also mentioned last week that although market concentration has reached the highest level in decades, the valuations of top companies are much lower than similar companies during the peak of the tech bubble.
Currently, U.S. stock valuations are far below previous peaks. In Subramanian's view, although the price-earnings ratio reflects the disconnect between price and value, it does not include the "Big Seven" Pro UltrPro Shrt S&Pro 500, which is closer to its long-term average level.