I know American friends who had played the game (sponsored in Italy by many fishmongers by coaches) to buy houses to be leveraged with variable rate mortgages of less than 1%, who now find themselves spending sleepless nights, because the installments have eaten the rent and they eat the houses.
In the graph below, the outlook for the US real estate market for the next 6 months is: 30-year mortgage rates (blue line) precede 6 months ahead of US realtors’ mood (black line), and if you look at what the blue line makes you aware of, that dark times are coming for homeowners, for soon the black line will also collapse after the blue:
This is to say what? That if until yesterday the corporate profits to move prices on the stock market in Italy and abroad spoke, today new monsters have also appeared on the horizon and especially inflation.
Quarterly data for US equities, which next week will present the second quarter results, will give us the pulse of what will happen between now and the end of the summer. Everyone waves in fear of the recession or pretends to be calm because they claim that the recession will be flimsy and short, otherwise it will not be. What is certain is that inflation is galloping on both sides of the ocean, and monetary policy has skyrocketed in a matter of weeks.
This week, investors will review earnings reports from major financial firms, including JPMorgan Chase JPM & Co. and BlackRock Inc. as well as other companies like PepsiCo Inc. and Delta Air Lines Inc. and will also look at new inflation estimates that are likely to affect the pace of the Fed’s rate hike plans.
In other articles, we have seen how it is the increases in corporate profits that drive prices on Wall Street and on all listed companies in the world, including in Italy.
According to FactSet, earnings among the S&P 500 companies from Friday are expected to increase 4.3% in the second quarter from the previous year. This will mark the slowest growth rate since the fourth quarter of 2020. For the year, profits are expected to increase by 10%.
In recent months, analysts have lowered their short-term earnings estimates due to all the headwinds that are blunting the U.S. economy, but many investors say these projections are still too rosy. Expectations for the second quarter fell by a margin below the historical average, while forecasts for the year rose, FactSet found.
Estimates for other profitability measurements are also still too generous, say some well-informed sources. The Wall Street Journal reports that according to FactSet, the S&P 500’s expected net profit margin for the second quarter is 12.4%, above the five-year average and a hair’s breadth from the previous quarter.
I do not think there are further margins for stock collapse in Italy and abroad. And that’s because the stock markets are predicting the economy, and a negative semester like this has not been seen since 1970, and that means the stock markets have already predicted the worst.
This is actually the worst.
The S&P 500 is currently trading at around 16 times expected earnings over the next 12 months (what analysts refer to as “forward price / earnings”).
This price / earnings indicator has fallen from around 21 times earnings at the end of last year.
Of course, it is worrying that according to FactSet in the second quarter, the largest number of companies in the S&P 500 issue experienced bearish earnings indications since 2019. The real ghost on the horizon is different: if the economy performs poorly in the US and Europe, banks’ power plants could repeat The mistakes of the 1970s, when they continuously lowered and raised interest rates now to tackle inflation now to encourage the economy, which also did not succeed.
Futures markets now see the Fed pushing interest rates from 1.5% to 1.75% today to 3.5% in March next year. And then back to squeezing the economy.
Let’s work the waiter out: if we have lost 35% capitalization of the international exchanges, because the exchanges expect the recession by 6 months or at least the lean cows, and in March it starts to rise again, as there are 8-9 months between now and March we can only say that the decline is over.
They are stories about the waiter, but often the waiters who stay in the kitchen all day about finances know more than the analysts on Wall Street.
We come to the stock market charts for the Wall Street and Milan indices: Wall Street is basically holding on to its previous lows, indicating a double low in formation (bullish configuration). Milan has sunk further because the gas crisis is hitting Europeans more foolishly, who have put themselves in the hands of the Russians for gas rather than the Americans, but now it seems to have found a fund. Clearly, summer is not a warning of big increases, at least statistically speaking, but let’s not put the bulls in front of the wagon: it could simply be a horizontal movement that the markets want to make.
If you want to know more about technical analysis, check out my miniseries of technical analysis lessons at the University of Bologna
The graph below shows you how when there are groupings of 2% drop of SP500, it generally means we are at the bottom: here are the historical precedents from 1962 to today.
In the meantime, the first opportunities are beginning to be seen, especially in the US market: but let’s get right and start with the Italian.