War still weighs on stocks despite the S&P 500’s rebound

{"text":[[{"start":5.5,"text":"It is less than two months since the start of the US and Israel’s war in Iran but the S&P 500 has already returned to record highs. Have stock market investors moved on from fears of escalating conflict? Perhaps not."}],[{"start":20,"text":"At its lowest point in late March, the US benchmark index fell less than 10 per cent from its all-time high — not even meeting the popular definition of a correction, much less a full bear market. The announcement of a two-week ceasefire sparked a huge rally and, even after a slip at the start of this week, the index was still above its prewar peak."}],[{"start":41.35,"text":"Look at valuations rather than prices, though, and a different pattern emerges. Valued as a multiple of the next 12 months’ earnings, the index is 5 per cent cheaper than it was at the start of the war, according to LSEG. "}],[{"start":54.25,"text":"Analysts now expect S&P 500 companies’ aggregate earnings over the next year to rise 18 per cent, up from 15 per cent a couple of months ago, as profits at tech giants like Nvidia keep outpacing expectations."}],[{"start":null,"text":"

"}],[{"start":68.55,"text":"The fact that higher growth expectations have not led to higher valuations suggests that investors are more wary, in general, of what the future holds — and applying higher discount rates to profits to come. In that way, the war is indeed weighing on stocks. Of course, the implication of this is that if peace isn’t fully priced in, further progress in talks should lead to additional gains. "}],[{"start":91.8,"text":"Looking at stock indexes relative to the earnings their companies are set to make also counters the popular belief that US stocks are being propped up by irrational retail traders. The S&P may have recovered faster than the Europe-wide Stoxx 600 in absolute terms, but on a price-to-earnings basis, the moves are more similar. "}],[{"start":null,"text":""}],[{"start":111.6,"text":"This suggests that, despite the focus on geopolitics, there is still plenty riding on first-quarter earnings. In the short term, the signs are good: most large US banks reported solid results last week, and analysts at Bank of America flagged encouraging updates from bellwether groups like trucker JB Hunt and industrial supplier Fastenal. US groups are adept at delicately massaging analyst forecasts so as to top them when they actually report, so first-quarter profit growth may be higher than the 12 per cent currently baked in."}],[{"start":144.2,"text":"The outlook, however, is less certain: the US is better insulated against high oil prices than most, but consumer confidence has plunged since the outbreak of the war and a prolonged conflict could weigh on spending and output. AI hyperscalers are doing a lot of the heavy lifting to support index-wide growth; any stumbles there could change the picture."}],[{"start":163.89999999999998,"text":"A little disappointment in this season’s earnings might help in the long run. President Trump is known to pay close attention to stock prices. If a weak earnings season increased the pressure to find a lasting peace in the Middle East, many executives would probably consider it a fair trade."}],[{"start":185.69999999999996,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1776932651_8478.mp3"}