A couple of comments before you raise your eyebrows. First, they both had a bit of catching up to do. The STOXX Europe 600 was at roughly the same level in November 2021. After that, it fell by some 19% and then rose by 24% to get back up at the same level.
For the S&P 500, we have to go all the way back to June 2021. The index (total return, adjusted for dividends) subsequently fell by roughly 15% and rose by 18% to get back at present levels. I take it I don’t have to explain why these percentages don’t seem to be symmetrical. I do suspect, though, that this rather technical point sometimes gets lost in the media coverage.
Second, you actually get more for your money now. P/E levels have fallen by 14%-15% in both indices, meaning that there is now a higher level of earnings behind each index point. Earnings have risen by 16%-17% since these indices were last at their present levels.
Overly optimistic analysts? That’s always a possibility, but there’s little to indicate that they are particularly sanguine right now. For one, actual earnings have been very strong, as witnessed by a flurry of positive quarterly reports. And estimates for the next 12 months’ earnings are up this year (STOXX Europe 600) or roughly flat (S&P 500). Most of the bad stuff forecast by the more pessimistically inclined would be expected to appear within those next 12 months.
Now, there’s one index that doesn’t have any catching up to do. In fact, the MSCI Nordic Countries index hit an all-time high on 17 April, an event that seems to have passed without anyone noticing. Going back to June 2021, as we did for the S&P 500, we find that this gauge of the Nordic market has risen by 12%.
Here, too, you get a lot more earnings for your index points, as the P/E ratio has been reduced by a full 22% in the same period. Again, this is all about strong earnings – which of course is the fundamental driver of stock market performance in the long run. I should probably add that stronger earnings for oil-related companies in Norway have contributed little to the combined Nordic earnings figure. There’s a wide range of companies here doing very well, thank you.
The moral of this month’s comment should be pretty obvious by now but let me be clear: An index quote is not a price tag.
Finn Øystein Bergh
Chief Economist & Strategist
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