The upward momentum of the pound may not be sustainable
2024-02-19
■ Although the UK economic indicators released this week have fluctuated between strength and weakness, interest rate advantages still contribute to the rise of the pound
■ It is expected that the UK will lower interest rates later than the US and Eurozone, but fiscal uncertainty still poses a risk of depreciation of the pound
This week is a busy week for the release of economic indicators in the UK. As of the 13th, 350 companies in the S&P 500 index have released their financial reports for October-December 2023. According to financial information company LSEG I/B/E/S, 80% of companies are expected to announce earnings-per-share (EPS) that exceed market expectations, which will result in a year-on-year increase of 9.2% in financial reports, exceeding market expectations before the financial report was released (a year-on-year increase of 4.7%). So far, the financial reports of major companies have generally performed well. According to industry classification, the EPS growth rate of departments where technology companies operate is relatively high, including communication services (up 54.1% year-on-year), public utilities (up 49.0% year-on-year), consumer goods (up 34.2% year-on-year), and information technology (up 21.4% year-on-year). Although the forecast for the quarter of January-March 2023 (year-on-year growth of 7.2% → 5.3%) and the quarter of April-June 2023 (year-on-year growth of 11.4% → 10.1%) has been lowered so far, the forecast for the full year of 2024 (year-on-year growth of 9.7%) remains at a relatively high level. While the US economy is stable, the possibility of a significant drop in stock prices is low due to a decline in performance prospects.
In this situation, the expected price-to-earnings ratio (PER) of S&P500 has risen to 19.8 times, which has been rising since late October (17.5 times), and the stock price level is considered too high relative to the company's performance outlook. In addition, the expected increase in demand for artificial intelligence (AI) has led to a concentration of stock price increases in technology companies in areas such as IT, communication services, and consumer goods, which has raised some concerns. However, the steady growth of EPS in these industries indicates that the current rise in stock prices is supported by performance. Except for a slightly too fast growth rate, the foundation for the current stock price increase is still solid. In the upcoming financial reports of semiconductor industry giants, if the profit growth expectations already integrated into the market are confirmed, the S&P500 is expected to continue to rise. On the other hand, if not recognized by the market, it may become an opportunity for stock price adjustment. We will closely monitor the market's response for this financial report.
■ It is expected that the UK will lower interest rates later than the US and Eurozone, but fiscal uncertainty still poses a risk of depreciation of the pound
This week is a busy week for the release of economic indicators in the UK. As of the 13th, 350 companies in the S&P 500 index have released their financial reports for October-December 2023. According to financial information company LSEG I/B/E/S, 80% of companies are expected to announce earnings-per-share (EPS) that exceed market expectations, which will result in a year-on-year increase of 9.2% in financial reports, exceeding market expectations before the financial report was released (a year-on-year increase of 4.7%). So far, the financial reports of major companies have generally performed well. According to industry classification, the EPS growth rate of departments where technology companies operate is relatively high, including communication services (up 54.1% year-on-year), public utilities (up 49.0% year-on-year), consumer goods (up 34.2% year-on-year), and information technology (up 21.4% year-on-year). Although the forecast for the quarter of January-March 2023 (year-on-year growth of 7.2% → 5.3%) and the quarter of April-June 2023 (year-on-year growth of 11.4% → 10.1%) has been lowered so far, the forecast for the full year of 2024 (year-on-year growth of 9.7%) remains at a relatively high level. While the US economy is stable, the possibility of a significant drop in stock prices is low due to a decline in performance prospects.
In this situation, the expected price-to-earnings ratio (PER) of S&P500 has risen to 19.8 times, which has been rising since late October (17.5 times), and the stock price level is considered too high relative to the company's performance outlook. In addition, the expected increase in demand for artificial intelligence (AI) has led to a concentration of stock price increases in technology companies in areas such as IT, communication services, and consumer goods, which has raised some concerns. However, the steady growth of EPS in these industries indicates that the current rise in stock prices is supported by performance. Except for a slightly too fast growth rate, the foundation for the current stock price increase is still solid. In the upcoming financial reports of semiconductor industry giants, if the profit growth expectations already integrated into the market are confirmed, the S&P500 is expected to continue to rise. On the other hand, if not recognized by the market, it may become an opportunity for stock price adjustment. We will closely monitor the market's response for this financial report.