Is it a continuation of a bull market or a growing speculative bubble? Investors in the USA in dilemma
The decision of the American Federal Reserve (FED) to reduce interest rates by 25 base points and statements of its president Jerome Powell again aroused the debate in the markets. Powell signaled that the economic slowdown is now a greater threat, not the potential return of high inflation. This declaration has become a breeding ground for analysts and investors whose opinions on the future of the stock market are extremely divided.
Steve EISMAN: Artificial intelligence is the main drive motor
Steve Eisman, who gained fame thanks to the accurate prediction and betting on the American real estate market before the crisis in 2008, is currently optimistic about the prospects of the stock market.
– Ultimately, I think the FED will reduce interest rates by a maximum of 100 base points and will end there – he said in an interview with CNBC.
In his opinion, the last decision of the central bank is not crucial for investors. Although lower interest rates can slightly revive the real estate market, they will not pull it out of the current stagnation.
According to EISman, the most important investment topic is currently artificial intelligence (AI). It is not only that she is responsible for impressive growth on the stock exchanges, but becomes one of the main engines of the entire economy. – This is the most important thing that I pay attention to now – he emphasized. He added that the key element of this revolution is infrastructure for AI, and the energy sources necessary to power powerful data centers are becoming a particularly interesting thread.
– If someone said ten years ago that we would talk about nuclear energy in this context, it would cause a huge surprise. The energy aspect of this story is fascinating – said the investor.
Ray Dalio: US debt threatens the global financial system
Ray Dalio, the founder of the Bridgewater Associates hedge fund, speaking at the economic forum of Singapore, warned that the growing public debt of the United States was a serious threat to the entire world monetary system.
“We see a threat to the money system,” Dalio said. – The sum of various factors will decide whether we will witness the end of the American empire.
The founder of Bridgewater Associates pointed out that the US government's expenses by 30% exceed its income, and to cover this difference it is necessary to issue a debt worth $ 12 trillion. “The global market does not have enough appetite for this debt, which creates a fundamental imbalance of supply and demand,” he explained, assigning such uncontrolled debt of the country of “human nature”.
David Rosenberg: We are in a giant price bubble
David Rosenberg, founder of Rosenberg Research, who also gained publicity by predicting the financial crisis of 2008, beats the alarm. Although his later forecasts did not always work, in the face of increasingly higher estimates for the S&P 500 index, it is worth listening to his arguments as a market bear.
Rosenberg warns that in the coming years the main American stock index may record drops. He bases his thesis on the historical valuations of companies. He cites a cyclical corrected price to profit (so -called Shiller Cape indicator) for the S&P 500 index, which takes into account the average profits from the last 10 years.
Currently, this indicator oscillates around level 37.5, which is the third highest result in history, lower only than the readings from 2021 and 2022. Rosenberg's calculations indicate that when the market reached such high valuations (above 35 on the Shiller indicator), the next year the rate of return from the index was negative.
What's more, this happens when the American economy sends signals of weakness, which can be seen, among others, from data from the labor market. – This is what the state of euphoria looks like, we observe it in real time. We found ourselves in a huge price bubble that is still growing. We know that we are dealing with a bubble when prices are rising contrary to the negative fundamental given – he said in an interview with Business Insider.
Larry Summers: Inflation is still the biggest threat
Larry Summers, a former Secretary of the US Treasury, claims that the monetary policy of the American Central Bank is actually looser than it is widely believed. For this reason, in his opinion, the greatest risk is not on the side of the weakening labor market, as suggested by the president of the Fed.
“In my opinion, taking into account the general financial conditions, politics is a bit more accommodating than people think,” said Bloomberg on television. “The risk balance tilts more towards inflation than unemployment,” Summers said.
He noted, however, that his difference of sentences with the president of the Fed is “a matter of degree”. – The greatest risk in this situation is that we will lose our inflation target at 2% and become a country where inflation psychology dominates – he warned.
LARS NAECTER: Rally on Chinese actions releases the pace
LARS NAECTER, a strategist for term markets at Bank of America (BFA), already at the beginning of September 2024 recommended investors to return to the Chinese stock market. The recommendation turned out to be accurate – the CSI 300 index launched at the end of the month and gained 30%by October 8, reaching a two -year maximum.
Now his recommendation has changed. After a 12 % increase in the index from the beginning of August, the space for further appreciation may be limited. The Last Optimism was pushed by the Chinese stock market into the “purchase” zone. overbought).
-You can focus on more “normal” and even growth, instead of crazy, 25-30% upward jumps-says Strategist. – Many investors have already got involved in the Chinese bull market, so further positive impulses probably will not cause such large changes in the allocation of their wallets – he adds.
Bank of America: “Bulls Festival” is underway on the market
The latest BFA survey conducted among fund managers showed that 28% of them maintain in their portfolios the overview of the campaign (allocation above the benchmark). This is the highest percentage for seven months. What's more, only 16% of investors expect weakening the economy.
Michael Hartnett, the main investment strategist of BFA, concludes that the stock indexes that recently beat new records will not change the direction for some time. The “Bull Festival” is on the market after the fears of the “recession customs war” dispelled, and allocation in actions has not yet reached “extreme levels”.
As the greatest risk of 28% of respondents considered the second wave of inflation, and 24% – the weakening independence of the Fed.
The study was conducted on September 5-11 on a group of 165 fund managers who control assets with a total value of $ 426 billion.
Source: Verslo Žinios
