The stock market’s current overvaluation might have some investors feeling apprehensive, but according to Piper Sandler, there’s no need to panic and sell off your holdings just yet.
In a recent note, Piper Sandler’s Chief Investment Strategist Michael Kantrowitz addressed the S&P 500’s 8% overvaluation, reassuring investors that this shouldn’t be a cause for concern. While acknowledging the overvaluation, Kantrowitz maintains that stocks can maintain their high valuations as long as there isn’t a sudden spike in interest rates, unemployment, or inflation. These three factors are considered the usual suspects that can trigger a market downturn.
Essentially, as long as these economic indicators remain stable, the stock market’s upward trajectory is likely to continue, even with the existing overvaluation.
Kantrowitz’s advice goes beyond simply holding on to existing investments. He also encourages investors to focus on stocks that are demonstrating strong earnings momentum. These stocks, he believes, are more likely to outperform the market and maintain their high valuations for longer periods. This strategy essentially aims to capitalize on companies that are showing strong financial growth, suggesting future potential.
This optimistic outlook from Piper Sandler comes amid a period of general positivity in the stock market. Despite concerns about overvaluation, the market has continued to climb, with the S&P 500 and Dow Jones Industrial Average reaching new record highs. This upward trend has been fueled by strong earnings from major U.S. banks.
However, it’s important to note that not everyone is sharing this optimistic outlook. Earlier this month, JPMorgan strategists cautioned that the Federal Reserve’s anticipated interest rate cuts might not be enough to drive a new surge in the stock market. They highlighted the importance of other factors like employment and inflation in determining the market’s future performance.
While the market’s future is always subject to uncertainty, Piper Sandler’s advice offers a reassuring perspective for investors navigating the current landscape. By focusing on strong earnings momentum and keeping a close eye on key economic indicators, investors can make informed decisions about their portfolios and potentially benefit from the ongoing market growth.