Chart of the Week
Although it has risen less than the European market since the start of the year, the US market was still up 9.5% YTD to the 19th of May. Many studies attribute the S&P’s rise to a small number of stocks, particularly in the technology sector. This is indeed the case. A breakdown of the performance of the S&P 500 shows that the rise can be explained solely by the rally in technology stocks.
OUR ANALYSIS
For both tech stocks (here the S&P 500 Technology, to which are added Amazon, Meta and Tesla) and the rest of the market, forward-looking earnings have been virtually stable since the start of the year. The rise in the price/earnings ratios of tech stocks therefore accounts for almost all of the increase. The enthusiasm surrounding artificial intelligence, following the launch of Chat-GPT at the end of November 2022, led to a sharp rise in the multiples of tech stocks.
While these stocks had corrected their post-Covid valuation excesses by returning to a P/E of 20x forward earnings at the end of last year, they are now trading at 25x forward earnings per share, halfway to the 30x post-Covid highs. Exuberance? Only time will tell. But if we exclude these stocks, the US market has not moved much since the start of the year, and implies a P/E in line with historical standards on very high earnings. A recession could, however, lead to a sharp fall in these earnings.
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The opinion expressed above is dated May 26, 2023 and is subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/at1-hybrid-debt-improving-risk-return-profile/
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This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS. LAZARD FRERES GESTION – a simplified joint stock company with share capital of €14,487,500 – Paris Trade and Companies Registry No. 352 213 599. 25, RUE DE COURCELLES – 75008 PARIS, FRANCE
