Hands may start shaking slowly as the beginning of November approaches

The benchmark S&P 500 index has risen by around 22 percent year-to-date, but a little uncertainty has been felt in recent days. Equity valuations remain high, making the market vulnerable to bad news – writes Reuters in its summary analysis.

According to data from LSEG Datastream, the average price-to-earnings (P/E) ratio of the stocks in the S&P 500 index, calculated with the expected results, is 21.8, which is a value close to a more than three-year peak. It’s no wonder that investors are getting more and more nervous, more and more people are afraid of a sudden, larger correction.

The “Wonderful Weeks” that have been driving the market in a rally since the fall of 2022, five of the largest capitalization technology companies will also publish their quarterly numbers next week. Google’s parent company Alphabet, Microsoft, Facebook owner Meta Platforms, Apple and Amazon.

Due to their huge market value, these companies together now account for 23 percent of the market value of the S&P 500 index, which means that market reactions to their results could affect the broader indexes in the coming days.

These seven wonder stocks trade hands at an average P/E ratio of 35. Of course, this is not a surprise, since the market sees a much higher than average growth potential in their activities compared to the other members of the S&P 500. However, this difference is expected to decrease in the coming quarters, according to analysts.

Investors will primarily be watching these companies, especially whether the huge investments related to artificial intelligence are beginning to show results.

According to BofA Global Research, artificial intelligence “hyperscalers” – Microsoft, Amazon, Alphabet and Meta – will increase their investments by 40 percent this year, while the rest of the S&P 500 companies will see such spending decrease by 20 percent until 2024.

Among the seven big ones, Tesla reported its results on Thursday. The share price jumped hugely after CEO Elon Musk promised that the company’s car sales could increase by 20-30 percent next year.

At the same time, Tesla’s shares are the ones that clearly illustrate what can happen to a growth stock if it does not deliver on expectations. After this week’s big rise, the company’s shares are still worth a good 30 percent less than their peak price reached in 2021, while the S&P 500 index has already surpassed its own record at the time by more than 20 percent. We wrote more about Tesla’s figures here.

Next week will be the busiest week of the third quarter reporting season, with around 150 of the companies in the S&P 500 index basket publishing their results.

In addition, the US employment report will arrive on the first of November. Here, investors will mostly be looking to see if the Federal Reserve slows down its pace of interest rate cuts due to stronger-than-expected economic growth. According to the analyst consensus, the US economy created 140,000 new jobs in the non-agricultural sectors in October. But data on wage trends will also be important. If these were to indicate that inflation is starting to rear its head again, it would have a pretty massive impact on the bond market.

Yields on benchmark US government bonds rose to a three-month high this week. This also shows that a little caution is beginning to appear regarding the expected monetary easing. Of course, the improvement of Donald Trump’s electoral chances plays a role in this, as the economic policy expected of him, according to the market, can be expected to stimulate inflation. We wrote more about this here.

The election is already upon us, November 5 will be the election day. And on November 7, the Fed’s next monetary policy decision will come. Nervousness is therefore increasing, as shown by the so-called fear index, the VIX index, whose value jumped to around 19 after falling below 15 at the end of last month. This indicator indicates how much volatility investors expect from the S&P 500 index based on options trading, higher values ​​indicate a more nervous investor mood.