Andrew here. As the world focuses on Monday’s meeting at the White House with President Volodymyr Zelensky of Ukraine and other European leaders, Wall Street is turning its attention to Jackson Hole, Wyo., where central bank officials are headed this week and where Jay Powell of the Fed is expected to speak. Investors will try to read between the lines of whatever he says, with September’s rates meeting potentially being his last major decision before President Trump names Powell’s successor, effectively creating a shadow Fed chair.
We’re also focused on the news that the World Economic Forum exonerated Klaus Schwab, the group’s founder, after a yearslong drip of anonymous accusations that he and his wife had misused the organization’s resources. Schwab stepped down as a result of the accusations, yet the board said that an investigation found “there is no evidence of material wrongdoing.” Larry Fink of BlackRock and the Swiss philanthropist André Hoffmann will become interim co-chairs of the organization.
Can it go much higher?
Trade war and geopolitical uncertainty. Rising inflation. Stagflation worries. A hiring slowdown.
None of that seems to be spooking investors. The S&P 500 and the tech-heavy Nasdaq Composite indexes just posted another set of weekly gains, their fourth each in the past five weeks.
But some analysts are concerned that the recent rally has made stocks unjustifiably expensive. Their warnings come before the annual confab of central bankers in Jackson Hole, Wyo., this week, where Jay Powell, the Fed chair, is scheduled to address the state of the economy. It could offer clues on the central bank’s next move on interest rates.
The bearish case:
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A key value indicator for the S&P 500, its price-to-book ratio, just surpassed a level it last reached in March 2000 — the eve of the dot-com boom collapsing, Michael Hartnett, a Bank of America market strategist, wrote in a research note on Friday.
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Much of the rally has come from tech giants benefiting from investors’ fervor for artificial intelligence. Has that exuberance gone too far? “A.I. will have a significant impact on our lives and productivity,” Torsten Slok, the chief economist at Apollo Global Management, wrote on Sunday in a note to investors. “But that doesn’t mean that the tech companies in the S&P 500 are correctly priced.” Sam Altman of OpenAI largely agrees.
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Two stocks that caught Slok’s eye: Tesla’s share price is valued at nearly 200 times earnings, and Nvidia’s is at around 60 — both extremely pricey levels by historical measures.
The bullish case:
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Hartnett doesn’t see a repeat of 2000 as inevitable. Investors on Monday appear to be eager for safe-haven bonds, too, suggesting that they could be better placed to grit out any downturn in equities prices, he wrote.
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Earnings season has shown that large companies are holding up in President Trump’s trade war, with profits surpassing analyst expectations, The Wall Street Journal notes. Corporate leaders also haven’t mentioned recession fears that much this quarter.
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The post The Bull and Bear Cases for Another Market Rally appeared first on New York Times.
