In a high valuation environment, one of two “catalysts” could cause a market correction.
Brian Arcese, portfolio manager at Singapore-based Food Asset Management, said the market is “expensive for quite some time.” S&P 500 Index It’s up about 23% year to date. Its price-to-earnings ratio is higher than 27, and Some describe it as expensive in almost every way.
“We do think the correction is healthy, but it’s going to take some type of catalyst for it to happen. I think it’s probably one of two things,” he said this week on CNBC’s “Squawk Box Asia.”
“We’re seeing slow growth in the U.S. economy. (It’s) still pretty healthy, but slow, right? That could be a catalyst,” he said. U.S. GDP growth is lower than expected According to data released on October 30, the third quarter.
“If inflation continues to slow further, if we see inflation rising again, that could be a catalyst,” Asese said. U.S. inflation rose to 2.6% in October, in line with expectationsaccording to data released on November 13.
“Catalyst for Correction”
Slowing earnings growth could also lead to a correction amid an environment of high expectations, Asese said.
“If we look at corporate earnings expectations for next year – even excluding IT and communications services, which have seen unusually high growth – excluding those earnings, growth is expected to be 10% to 12%, which is relatively high compared to history,” he said. .
Goldman SachsStock outlook predicts earnings growth of 11% in 2025 a note from last week.
“If you have high expectations, coupled with high valuations, then if you do see earnings growth start to slow down, or expectations start to come down, that could be a catalyst for a correction,” Alsese said.
factors include U.S. GDP growth and profitable growth as well as Inflation falls and interest rate It’s a relatively rare combination, Arsese said. “These factors don’t actually happen very often, right, at the same time?” he said.
“That’s very constructive for stocks, that’s obviously what we’re seeing and that’s why stocks continue to make higher highs. We do think the correction is healthy,” Arsese said.
Utility Opportunities
Utilities are an industry where growth is not priced into prices, Asese said. “They are more expensive than before, but … they are still cheaper than the market,” he said. SSE and Edison As a stock owned by Food Asset Management.
The increase in data centers and the development of artificial intelligence, which requires more power, means growth is “returning”, Alsese said.
“At the same time, regulated utilities are required to invest a lot of money into the grid for transmission and distribution, and they get a return on all of that money,” he said.
