Schroder: Currently, the valuation of US stocks is too high. Pay close attention to whether the earnings and growth momentum of the "Big Seven" in technology are matching

According to the Zhītōng Finance APP, the Schroders Quantitative Stock Research Team stated that by early 2024, the US technology sector's share in the local overall stock market index had reached a high level similar to the peak of the tech bubble in mid-2000 - with technology stocks accounting for a significant portion of the financial market (23% of the MSCI Global Index and nearly 29% of the S&P 500 Index). However, the current situation is different from 25 years ago, most notably that compared to 25 years ago, the fundamentals of the technology sector are stronger now and have a significant impact on the financial markets. While the US tech "Big 7" still deserve close attention, it is important to note that monitoring the actual performance of these stocks and discerning whether the earnings and growth trajectories of these companies match each other is crucial.

Schroders mentioned that if the Federal Reserve delays rate cuts beyond market expectations, based on historical data, although there may be a high level of optimism in the financial markets before the first rate cut, cautious sentiment will follow. This will lead investors to prefer high-quality and leadership-capable companies, therefore, defensive stocks may receive more widespread attention than in the past. The key question is how long the period of stability in the US federal funds rate will last.

Despite the upcoming rate cuts, the financial markets are currently unclear whether loose policies are favorable for the stock market, due to the lagging effects of previous tightening policies, ultimately dragging down corporate profits and stock returns. Overall, Schroders believes that in 2024, the financial markets will experience rotation, increased volatility, and fewer favorable factors for overall financial market returns.

Schroders stated that from a long-term perspective, US stock index valuations are not attractive. In early 2024, the forecasted price-to-earnings ratio of the S&P 500 Index is around 21 times, nearly 20% higher than its 15-year median. Currently, the cyclically adjusted price-to-earnings ratio of US stocks (31 times) is 22% higher than the average level since 1990, whereas the average cyclically adjusted price-to-earnings ratio in other global regions (15 times) is slightly below recent historical levels