Key highlights

  1. Global equity markets are defying key leading economic indicators
  2. One year forward P/E expansion has driven the S&P 500 higher, despite analysts cutting earnings forecasts
  3. A narrow market, supported by artificial intelligence has driven US equity market performance year-to-date
  4. Individual investor sentiment surveys suggest that investors have become more bullish

Central banks’ efforts to contain inflation are backward-looking and are reigniting fears of a recession

Manufacturing Purchasing Manager’s Index (PMI)

Line chart showing Manufacturing Purchasing Manager’s Index (IPM). The line chart shows two lines: Global and Eurozone.

Source: FactSet, as of 31 May 2023.

This chart shows Manufacturing Purchasing Manager’s Index (IPM) from May 2017 to May 2023. From May 2017, the PMI value is greater than 50, suggesting that the manufacturing sector was expanding. However, PMI value began to fall from late 2017 and held relatively steady around a PMI value of 50, suggesting the manufacturing sector was neither expanding nor contracting. In the early months of 2020, the PMI value drastically fell both globally and in the Eurozone. The Eurozone manufacturing sector suffered significantly more than the global manufacturing sector, reaching its lowest PMI value around April 2020. However, as of Nov 2020, the PMI values globally, and in the Eurozone surpassed 50 and continued to increase until the manufacturing sector peaked in May 2021, with the Eurozone PMI value being significantly greater than the global PMI value. Since May 2021, PMI values both globally and in the Eurozone have fallen and as of May 2023 the values are below 50.

Equity valuations move higher despite weaking leading indicators

Stoxx Europe 600 & S&P 500 P/E NTM

Line chart showing equity valuation through STOXX Europe 600 and S&P 500 price-to-earnings next twelve months ratio.

Source: FactSet, as of 30 June 2023

This chart shows equity valuation through STOXX Europe 600 and S&P 500 price-to-earnings next twelve months ratio over the past 10 years. Although there have been fluctuations over the past 10 years, and sudden decrease in valuations during the Covid-19 pandemic, this chart shows an overall increase in equity valuations as of 2023.

Analysts continue to cut earnings for US stocks

S&P 500 2023e EPS

Line chart showing earnings per share for companies within the S&P500 from June 2021 to June 2023.

Source: Thomson Reuters Datastream, as of 31 May 2023.

This line chart shows the earnings per share for the companies within the S&P 500 with an overall downward movement in value.

AI stocks drive equity markets higher

Price index (rebased to beginning of 2023)

A line chart showing price index (rebased to beginning of 2023) of the S&P500 and the S&P500 excluding AI(artificial intelligence) stocks.

BCA Research as at the 30 June 2023. Past performance is not indicative of future results.

EXCLUDES THE FOLLOWING STOCK PRICES: NVIDIA CORP, ADVANCED MICRO DEVICE, MICRON TECHNOLOGY, MICROSOFT CORP, ORACLE CORP, SALESFORCE.COM, ACCENTURE CLASS A, ADOBE SYSTEMS INC, IBM, SERVICENOW, ARTISTA NETWORKS, DEERS & CO, TESLA MOTORS, AMAZON.COM, BOOKING HOLDINGS, EBAY, ETSY, ALPHABET ‘A’ (GOOGLE), ALPHABET ‘C’ (GOOGLE), META PLATFORMS A, ACTIVISION BLIZZARD, AND ELECTRONIC ARTS.

This chart shows the price index (rebased to the beginning of 2023) for the S&P 500 and the S&P 500 excluding AI stocks. Throughout 2023 to date, when including AI stocks, the value of the index is higher. From March 2023, the difference in valuation between the value of the index with AI and the value excluding AI is significant. AI stocks are driving equity markets higher.

Investors have become more bullish

AAII investor sentiment survey – Bull

Line charts showing the results of the American Association of Individual Investors survey of investor sentiment towards the stock market, showing bullish

Source: AAII Investor Sentiment Survey as at 14 June 2023.

These charts show the results of the AAII Investor Sentiment Survey. The results indicate that overall, investors have become more bullish.

AAII investor sentiment survey – Bear

Line charts showing the results of the American Association of Individual Investors survey of investor sentiment towards the stock market, showing bearish

Source: AAII Investor Sentiment Survey as at 14 June 2023.

These charts show the results of the AAII Investor Sentiment Survey. The results indicate that overall, investors have become more bearish.

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