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I have said for a while now that it’s quite possible markets will fall further before rising again. This is because with an absence of positive news and a lack of direction from central bankers, markets have been idling directionless all year and something needs to act as a catalyst to drive them forward.
In a recent note from Capital Economics, whilst they believe that US equities could falter towards the end of this year as growth disappoints, AI enthusiasm will trigger a bigger rally further ahead. This is because the US stock market hosts most of the “big-tech” companies that will presumably benefit from this technology.
Price earnings ratios are of limited relevance for fast moving tech companies as these often measure past earnings or at best twelve month forward earnings. But shareholders have a claim on all future earnings of a company.
The upshot is that Capital Economics remain comfortable with their forecast of a fall in the S&P before year end , but believe it will stand at nearly 50% above its current level by the end of 2025.
Comments from James Scott-Hopkins, Managing Director, Irongate. Incorporating the outlook from Capital Economics as of 23rd August 2023, published in their newsletter
The views are those of the author only. The article is not intended to be a recommendation to buy. The value of investments can fall as well as rise.
