While the exact article titled "Reasons to be bullish on equities" from the Financial Times (FT) at the provided URL was not directly accessible, information from other FT articles and financial news sources suggests several reasons for optimism in the equity market. Corporations are performing ably, having built resilience during the pandemic, and CEOs are adept at managing inflation and utilizing technology to boost productivity. This has led to the CEO Confidence Index reaching its highest level in over a year.
Consumer spending continues to show sustained strength, driven by market forces and effective policy decisions. Pandemic-era government aid bolstered American households, and real wages grew between 2019 and 2022, with the strongest growth at the lower end of the wage distribution. This wage growth has consistently outpaced inflation, and elevated household cash balances further fuel spending, even amidst rising prices.
Innovation-driven mergers and acquisitions (M&A) are also contributing to long-term growth. The strategic rationale for M&A has shifted towards strengthening companies' innovation engines, focusing on targeted marketing, supply chain improvements, new product distribution, and enhanced manufacturing. Additionally, substantial government investment in the US economy, with nearly $3 trillion in federal funding allocated for productive investment over the last four years yet to be spent, is set to drive growth. This public investment is complemented by a galvanized private sector, evidenced by projects like Intel's $100 billion semiconductor manufacturing hub in Ohio, partially incentivized by federal tax credits.
Earnings, not just valuations, are seen as a key driver for the US stock market. Despite some skepticism and concerns about inflation and rising interest rates, analysts note that resilient earnings growth and AI-driven investment continue to support a bullish case for equities. While the S&P 500's valuation multiples appear stretched, with a 12-month forward price/earnings ratio 15% above its 30-year average, the overall earnings outlook remains strong. Some strategists suggest that small-cap stocks, like those in the Russell 2000, may offer better value based on price/book ratios compared to the more expensive S&P 500.
