Wall Street is the most bullish on stocks in nearly two decades


It has been two decades since Wall Street analysts were so optimistic.

About 56% of all S&P 500 business recommendations are listed as buys, the highest number since 2002. This is another data point that shows the extent of the euphoria sweeping through the markets after a season. from profits to success.

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While analysts have historically been a bullish group, they become even more optimistic about relentless stock market gains and company earnings that have exceeded even the highest expectations. Despite all the worries about the delta variant, China’s regulatory crackdown, or the Federal Reserve’s slowing stimulus, it hasn’t done much damage to stock prices yet.

“It’s not just financial conditions and low interest rates that are fueling the appetite for risky assets – significant fundamental improvement is expected by 2022,” said Todd Jablonski, chief investment officer at Principal Global Asset Allocation, in a note.

American businesses aren’t the only ones feeling love. In Europe, around 52% of recommendations on Stoxx 600 companies are buy or equivalent, a 10-year high. In Asia, that number climbs to 75%, the highest proportion since at least 2010.

The second quarter earnings season was one of the strongest in history, although it was helped from a period last year when many parts of the world were in the grip of pandemic lockdowns. US profit growth of 90% was 17 percentage points above expectations, while a 71% increase in Europe surprised positively by 16 percentage points, according to JPMorgan Chase & Co.

In both regions, results were stronger than suggested by accelerating growth momentum over the period, JPMorgan strategists said in a note.

Price targets

While some of this earnings optimism has been built into the markets, analysts see the possibility of more gains. The conversion of 12-month aggregate price targets for Stoxx 600 members implies an increase of approximately 9% for the index from current levels, while for the S&P 500 the implied gain is approximately 10% and for Asia by 21%.

For Ben Laidler, global markets strategist at Etoro Ltd., the reopening of the trade “hasn’t even started yet.” For businesses like restaurants, tour operators, airlines and hotels, profits are still down 85% from where they entered this crisis, he said on Bloomberg TV, leaving a clear margin for a bounce.

Luc Aben, chief economist at Kempen & Co., has a positive outlook on value stocks. “These are over-represented in sectors that have been heavily affected by the coronavirus pandemic,” he said in a note. “If the recovery persists, the style rotation could resume. ”

Still, such bullish sentiment doesn’t come without a hint of exuberance and it wouldn’t be the first time investors have been taken on the wrong foot.

“I have no doubts that the market is moving in the direction that hurts participants the most,” said Dave Lutz, head of ETFs at JonesTrading Annapolis. “If all the analysts on the street are optimistic, I would be very careful,” he said in a note.

At present, however, the markets are not in the mood for a correction. The last time the S&P 500 Index peaked down 5% or more was 193 days ago, about double the long-term average.

“There is a lot of purchasing power on the sidelines and any correction that might be justified could also be short-lived,” said Frederik Hildner, portfolio manager of Salm-Salm & Partner, by telephone.

© 2021 Bloomberg



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