SCB CIO Foresees US stock market entering
consolidation phase following 26% surge in 2023; shifts strategy to hold while
awaiting optimal accumulation opportunity amid potential price correction
SCB CIO has shifted its market outlook on the US stock market from Slightly Positive (gradual investment) to Neutral (hold). This adjustment follows a remarkable 26.29% return in the US stock market in 2023, outperforming global markets, driven mainly by a select group of technology stocks known as the “Seven Angel Shares”. The market is showing signs of tightening, with investors acknowledging the profit potential of the Tech Group and the significant impact of the Fed's policy interest rate reduction on the index. It is anticipated that the US economy will experience a soft landing, supported by a robust labor market. The US stock market boasts "high-quality" stocks, constituting a significant portion of stocks with long-term growth prospects. It is advisable to patiently await opportunities for accumulation, targeting lower valuations and more favorable price levels.
Dr. Kampon Adireksombat, First Senior Vice President and Team Head of
the CIO Office at Siam Commercial Bank, disclosed that in 2023, the US stock
market outperformed the global stock market, with the S&P 500 index
registering a total return, incorporating both price fluctuations and
dividends, of 26.29% compared to the close of 2022. In contrast, the returns for the MSCI ACWI
and MSCI World indices, representing the global stock market, stood at 22.20%
and 23.79%, respectively.
Looking into specifics, the robust returns in
2023 were primarily attributed to two main factors: 1) a surge in the stocks of
seven major technology companies known as the "Seven Angel Stocks,"
which include Apple, Amazon, Alphabet, NVIDIA, Meta, Microsoft, and Tesla. This
group of stocks yielded an impressive total return of 78.09%, constituting more
than half of the S&P 500's annual return. Excluding these seven large
companies, other listed firms in the S&P 500 contributed a return of
12.30%, accounting for only 10.97% of the S&P 500's overall return. 2)
Market expansion was widespread, particularly in the fourth quarter of 2023,
driven by signals from the Federal Reserve indicating a relaxation of the
policy interest rate adjustment. Consequently, bond yields experienced a sharp
decline, propelling the S&P 500 index upward.
However, despite the exceptional growth in
technology stocks within the US stock market, the SCB CIO has adopted a more
cautious outlook. There is anticipation that US GDP growth is transitioning
into a "soft landing" phase, characterized by a gradual slowdown. The
rate of US economic growth peaked in 3Q23 and is expected to decelerate from
4Q23 to 2Q24, before picking up pace again in the second half of 2024. Analysts
have initiated downward adjustments to profit forecasts for listed companies in
the upcoming period, prompted by increasingly negative guidance from executives
of companies listed on the US stock market.
Furthermore, valuations are beginning to
tighten, posing limited possibilities for re-rating valuation compared to the
expected growth rate in 2024. We have observed that analysts providing
optimistic target prices estimate an average S&P 500 earnings per unit
growth (EPS) of 8.6%, coupled with an average 12-month Forward
Price-to-Earnings ratio of 21.1x, a scenario we consider somewhat improbable.
As pricing and market sentiment enter the "Greed" zone, there is
increased vulnerability to risks stemming from heightened expectations.
Simultaneously, businesses demonstrating the
ability to generate substantial profits have already been assigned a reasonable
"Premium" value. In 2023, market projections indicated that S&P
500 profits were not anticipated to grow compared to the previous year (YoY).
Instead, growth was expected to be concentrated in stocks belonging to the
Quality Growth category, such as the "Seven Angel Stocks," which are projected
to achieve a remarkable 33% YoY growth. In contrast, the S&P 500 was
forecasted to experience profit growth within the 0-1% YoY range. However, a
majority of investors acknowledge the potential for superior profits of this
select group of companies. This is evident in the concentration of market
capitalization in technology stocks compared to the S&P 500, underscoring
the market's inclination to assign premiums to industrial groups reminiscent of
the Tech Bubble in 2000.
Dr. Kampon emphasized that, considering these
factors, SCB CIO has revised its recommendation for the US stock market from
Slightly Positive (Gradually Invest) to Neutral (Hold). This adjustment stems
from tightening valuations and a more limited upside opportunity, especially
following the S&P 500 index's continuous ascent over the last nine weeks of
2023. The swift upswing suggests that investors are factoring in an anticipated
policy interest rate cut, with market expectations pointing toward approximately
six rate reductions in 2024. According to the SCB CIO's perspective, the latest
economic and inflation data for the United States indicate that the Fed is
likely to reduce interest rates in the third quarter of 2024, with a total of
three cuts expected in 2024. This situation implies a short-term risk of
correction for the US stock market if the Fed's rate cut falls short of market
expectations or if economic growth slows down more rapidly than anticipated.
Nevertheless, we maintain the view that the US
economy is still experiencing a soft landing trend and that the labor market
will remain robust. The US stock market comprises "High Quality"
stocks, presenting significant potential for long-term growth. Consequently, we
recommend waiting for strategic timing to accumulate positions when valuations
are less constrained and at a more favorable price level.
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