The mid-June to mid-August rally in US stocks prompted some investors to say that a new bull market had begun. Not so fast, write Bank of America’s equity quant strategist Savita Subramanian and colleagues.
“BoA forecasts the first rate cut in the September quarter of 2023, and 2-yr yields are still rising to cycle highs,” they wrote.P 500 are “rich on almost every measure we track”, the strategists said, and one signpost with a perfect track record says it is too early to buy: the Rule of 20. “The rule is simple: CPI + trailing P/E should be less than 20 ahead of a market bottom. Today’s sum is 27, and valuations imply 3 per cent CPI based on a longer term historical relationship.
“The unemployment rate rose in August, which typically happens before market bottoms . But the average lag between initial rise in unemployment and market bottom has been 13 months.”P 500 fell 1.1 per cent to 3924.26 on Friday in New York; its most recent low of 3636.87 was reached in mid-June.
so wrong
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