U.S. markets and stock exchange traded funds rebounded Thursday on easing fears of a market bubble as investors refocus on quarterly earnings.
On Thursday, the Invesco QQQ Trust (NASDAQ: QQQ) rose 1.1%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was up 1.2%, and iShares Core S&P 500 ETF (NYSEArca: IVV) gained 1.2%.
Market observers are now looking at the earnings season to see whether or not companies could continue to justify high valuations, with the forward price-to-earnings ratio on the benchmark S&P index near 20-year highs at almost 22.7, Reuters reports.
“You come into today and so many companies have beat estimates and yeah, maybe some of them are a little weak, because they were strong going in,” Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, told Reuters.
“What has been consistent since the pandemic is Wall Street has been too bearish on earnings estimates and I thought at some point this is going to run out of steam, and it ain’t running out so far.”
Traders were also assuaged after trading platforms restricted trades on shares of several high-flying stocks this week, which helped limit the potential ripple effect of the price fluctuations from spilling over.
“Trading platforms are not going to want to stick their necks out and be on the frontline of what they may see as a reckless war, in part, against the elite and the system of Wall Street that’s being democratized by information and the social media,” Eric Schiffer, chief executive officer of private equity firm the Patriarch Organization, told Reuters.
Nevertheless, analysts are urging investors to focus on earnings, which have been mostly upbeat. Almost a third of the S&P 500 has reported so far, and about 81% have topped analyst’s forecasts, the Wall Street Journal reports.
“While the behavior of some market participants is reminiscent of historical stock market bubbles, we don’t believe the market as a whole is in a bubble,” Mark Haefele, chief investment officer of global wealth management at UBS Group AG, told the WSJ.
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