Here’s Why Experts Think The Stock Market Could Rip Higher As Stocks Test New Highs – Forbes

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Stocks are floating near-record levels Tuesday as the biggest week for quarterly tech earnings revs up, and though experts have been warning of concerning market indicators, the ongoing rush of blowout corporate earnings and historically low interest rates are among reasons the rally could push even higher. 

Key Facts

Shortly after the market open, the S&P 500 and tech-heavy Nasdaq were just under their latest record highs from Monday, ticking down about 0.1% apiece after climbing about 5% and 8%, respectively, over the past month.

Heading up the S&P, UPS shares are soaring 9% after the courier shattered analyst expectations with its earnings release Tuesday morning, posting first-quarter revenue of $14 billion, soaring 27% from last year, and operating profit that nearly tripled to $2.8 billion thanks largely to growth from small and medium-size businesses.

Other stocks outperforming Tuesday morning included FedEx (up 3%, thanks to UPS’ bump), SBA Communications (up 3% after beating earnings expectations) and chipmaker NXP Semiconductors (also up 3%, due to better-than-expected earnings).

Among stocks leading losses, Tesla shares, which have soared a staggering 360% over the past year, are slumping 3%, despite posting a record first-quarter profit of $438 million Monday after the market closed—outperforming analyst estimates but falling short of extremely bullish expectations.

In a Tuesday note, LPL Financial Equity Strategist Jeff Buchbinder said investors may be “overly optimistic,” given that stock valuations are elevated on traditional metrics, but that most stock prices look “reasonable,” due to strong corporate earnings, historically low interest rates and a pandemic tech boom that’s benefited more labor-efficient companies like Amazon.

Crucial Quote 

“Stock valuations are elevated right now, and a lot of good news is priced in, but we believe valuations are quite reasonable,” Buchbinder wrote Tuesday. “Investors are appropriately optimistic given the backdrop of a dramatically improving economy, the rapid pace of vaccinations in the U.S, massive levels of fiscal and monetary stimulus—and surging earnings.”

Tangent

“Even with stocks at record highs, we expect further upside,” says Tom Mantione, a managing director at UBS Private Wealth Management. Like Buchbinder, he’s bullish that the vaccine rollout, coupled with fiscal stimulus and accommodative monetary policy will continue to lift the market higher. “We are telling clients to stay invested and buy the dips in sectors of the market that have long-term staying power, such as green tech, health tech, 5G and cybersecurity.”

Big Number

22. That’s the average price/earnings ratio in the S&P—several points above the average of 17 since 1980, Buchbinder notes. The last time the ratio was so high was during the Great Recession in 2009.

What To Watch For

Big-tech earnings are just getting started. Microsoft reports Tuesday after the close, followed by Facebook and Spotify on Wednesday, before Amazon and Twitter on Thursday. This week should also provide clarity on both monetary and fiscal policy—two other areas that have helped stocks soar during the pandemic. The Federal Reserve makes one of its eight annual announcements on Wednesday, the same day President Joe Biden makes his first joint address to Congress. He’s set to make the case for his $2 trillion infrastructure proposal, which is already facing opposition from key lawmakers, and he’s likely to preview additional details on his tax plan, which briefly tanked markets last week.

Further Reading

S&P 500, Nasdaq Post New Highs As Amazon And Tesla Rise On ‘Monster’ Earnings Expectations (Forbes)

S&P 500 Passes 4,000—And These Market Experts Think It Can Keep Climbing Higher. Here’s Why. (Forbes)

US Economic Growth Is Peaking And That Means Stocks Could Struggle This Year, Goldman Warns (Forbes)

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