first quarter results in general, they were stable, but this did little to comfort investors this reporting season. It seems that this time the furniture of some markets located in “collapse mode” due to high inflation, monetary tighteningand global uncertainties such as the war in Russia and Ukraine.
S&P 500 earnings per share according to data from Credit Suisse. However, the sample has fallen by 10% since listed companies began publishing their reports early last month. NASDAQ Composite In a month, he lost almost 20%. Simply put, investors these days are more focused on macroeconomics than microfinance.
the ball falls back onto the roof of the Federal Reserve. The magnifying glass is focused on the tightening of monetary policy, as well as a number of other factors that bring great uncertainty and volatility to the stock market, such as the war in Ukraine and all its tragic consequences. It was a recipe for lower stock and bond prices, which are inversely proportional to returns.
Usually, Price/earnings ratio (PER) stocks declined faster than earnings rose. Macro pressure has been particularly strong in growth-oriented areas of the market, where microfinance has also often not been particularly helpful. The Vanguard S&P 500 Value VOOV ETF has lost about 7% since the start of the reporting season in the first quarter, compared to an 18% drop in the first quarter. Vanguard S&P 500 Growth ETF VOOG. This is the prevailing trend.
For the past two years, the Fed has kept interest rates near zero and bought tens of billions of dollars worth of bonds and other securities every month. This process is called quantitative easing. “Now rates are rising and the central bank will start allowing that his balance sheet is shrinking as his assets reach maturity,” Morgan Stanley experts say.
bond futures markets and interest rates moved in anticipation of new campaigns. Current prices imply another 2 percentage points of growth for the US monetary institution before the end of this year, according to data CME groupp, in addition to an increase of three-quarters of a percentage point in the last two meetings.
“This is leads to higher capital costs for companies that depend on financing through the issuance of bonds, obtaining bank loans or venture capital, ”says Morgan Stanley. “Companies within this structure that will receive the majority of their profits in the future have a large discount,” they add.
Puncture Netflix, eBay or Etsy as examples
This morbidity of results has been observed in some benchmark growth companies. This is the case of Netflix, which has seen its subscriber count decrease. Teladok Healthcarethat lowered the value of your business; and online stores such as eBay D etsy, who have faced their bleak financial outlook for 2022 despite a strong first-quarter performance. These are just a few examples of bleaker results for some of the listed companies that used to smile the most.
“If we combine the adjustment The Federal Reserve with these disappointments in many large caps associated with growth, we can expect more generalized drops in the markets and in large technology capitals, which are already undergoing a significant correction, ”the experts point out. Atlantic Capital in a recent note.
The rotation is already being prepared. Overall, S&P 500 stocks are trading at about 15 times their projected earnings over the next 12 months. This is less than 17 times at the beginning of 2022. S&P 500 growth their forward P/E has fallen less than 21 times from about 28 times since the beginning of the year. This multiple has shrunk to 17 times from about 21.5 times for the US index as a whole.
“Now, liquidity costs more, which favors more mature and profitable companies rather than new companies. and companies in the early stages of growth,” Jefferies said in the report. “This is why the changing monetary policy environment has affected the valuation of growth stocks in sectors such as technology, software, consumer choice or biotechnology“, they add.
It’s macroeconomic pressure on market multiples that outperformed revenue and earnings growth in the first quarter, which was the strongest in the S&P 500 energy, commodities and manufacturing sectors. The microsegment hasn’t been as good for growth stocks this reporting season. S&P 500 Value Stocks Rise annual profit and revenue 14.0% and 13.7%, respectively, compared to growth of 9.3% and 13.1%, according to Credit Suisse.
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