JP Morgan says: it is time to buy shares now, because they are supposedly always going up – historically speaking. For real?
Since the low in March, stocks have risen – globally. Especially in the USA, however, shares have risen extremely strongly. And now comes the major US bank JP Morgan and says: it is time to buy shares now, because they are supposedly always rising historically. Earnings expectations have risen massively as a result of the Corona Crash, especially since the “competition” from the bond markets, which no longer offer yields, has practically ceased.
With the rally of the stock markets, however, valuations are extremely high, especially on Wall Street. Profit expectations are falling, while prices have risen massively (particularly visible in the US non-value index Russell 2000).
Measured against the 1st quarter, the market capitalisation of shares in the USA is currently at a historically high 140%. If the second quarter now turns out as expected with a forecast US GDP of -23% to -42% (the latter the Atlanta Fed measurement, see the estimates for US GDP in the 2nd quarter here), the ratio will be even more extreme!
History and expectations
In addition, the deviation between the profit expectations for stocks (which have fallen sharply) and prices (which, as is well known, have risen sharply) is as high as rarely in history. Liz Ann Sonders has shown a brilliant analysis: in a good 90% of stock market history, profit expectations and prices of stocks are congruent. That is currently the absolute opposite:
The market capitalisation of shares in the USA is currently 38 trillion Dollars. This means that Wall Street has a market capitalisation more than twice as high as all other developed markets combined. Is this really a buy argument? Especially since it is precisely the US in the corona crisis that shows how low one can fall in terms of unemployment and the economy. At the same time, the optimism (and the resulting long positioning, especially in the options market) for stocks in the US is at its highest level since 2012 (see here and here).
But of course we are happy to let JP Morgan explain to us why it is necessary to buy shares precisely because of the Corona crisis. After all, shares are said to always rise in the long term (unless they fall…)
More about this in the following (german) video of “Mission Money”: