Why The Market Might Be Underpriced
Market Outlook
As confirmed in the updated graph below, the overall equity market has been in a bullish uptrend since the third quarter began. Basically all the major indices have seen across-the-board gains over the second half of the year, which historically is supposed to be the worst for market performance. The majority of market pundits voice no reason to believe it will end anytime soon and the next big trading catalyst should be a positive one for equity markets. Of course, market crashes usually happen when few people expect it and the next one probably won’t be any different. The third-quarter earnings season is scheduled to ramp up over the coming weeks, and some major investment banks say the market, despite trading near all-time highs, hasn’t priced in how good results could be relative to current forecasts. According to FactSet, earnings for S&P 500 companies should rise 2.81% from a year ago. Sales are seen rising 4.79% compared with the third quarter of 2016. Morgan Stanley sees the earnings season as having a mixed impact on stocks, which have hit dozens of records throughout 2017. The firm forecast a market consolidation—“a sell the news event”—during the season, but added that the S&P 500 could then “make its next surge” toward 2,700, the bank’s first-quarter 2018 target for the benchmark. J.P. Morgan Chase & Co. was similarly bullish on the coming season, indicating that the overall earnings per share growth rate could be more than three times that of current consensus expectations. Such results would be “reassuring” for investors, J.P. Morgan said, and “one of the positive catalysts that will drive the equity rally into the year-end.”
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