In Markets "In a Nutshell"

Markets “In a Nutshell” for November 25, 2024

Investment Week at a Glance

Stocks finished higher for the week. The Dow Jones Industrial Average rose 2.0%, the S&P 500 was up 1.7%, and the NASDAQ rose 1.7%. Foreign stocks (MSCI EAFE) were down, falling 0.2%. Bond prices were up for the week, with the 10-year U.S. Treasury ending the week at 4.41%.  (Data source: Wall Street Journal)

Are Stocks Overvalued?

Currently, the forward price-to-earnings ratio of the S&P 500 is nearly 22, 30% above its historical average. What is interesting is if we look at the equal-weight S&P 500, the forward P/E ratio is right in line with historical averages. This shows that many companies are undervalued when looking at their historical P/E averages. However, the mega-cap tech companies have valuations that are much higher than what we see historically. One of those reasons is the prospect of AI being able to make these companies more efficient, increasing their profits over time. This is one reason to have a diversified portfolio as market gains are set up to continue to broaden out as small-cap and mid-cap companies are undervalued in comparison to the mega-cap stocks.

Oil Prices Fall

The price of oil recently fell 3% as talks of a cease-fire between Israel and Hezbollah have picked up. The Israeli ambassador to the US said a cease-fire could happen within days, a positive sign for easing tensions in the Middle East. This also comes as President-Elect Trump has appointed Scott Bessent as the nominee for Treasury Secretary. Bessent has advised Trump to push for millions more barrels of daily oil production according to the Wall Street Journal. The overall stock market has taken this appointment well as Bessent is seen as a moderate who in the past supported Barack Obama and Hillary Clinton.

NVIDIA Earnings

NVIDIA reported earnings last week and once again beat expectations for the 3rdquarter. Revenues continue to rise rapidly, up 94% on an annual basis. (CNBC) Despite the beat in earnings, the stock has fallen slightly, down nearly 8% since the opening bell on Thursday. Guidance for the company didn’t “wow” investors which was one reason for the stock moving lower. Some investors expected a larger earnings beat for the stock. Despite the slight dip, when looking at NVIDIA’s returns for 2024, the stock is up over 180% and up over 2,400% in the past 5 years and has a current market cap of $3.35 trillion. (CNBC)

Quiz:

What is the current forward P/E ratio of international stocks? (Scroll Down for Answer)

  1.     24
  2.     19
  3.     16
  4.     13

 

 

 

 

 

 

 

 

Answer below.

 

 

Have a Great Week!

 

 

 

 

 

 

 

 

 

 

 

Answer:

4.    13. International stocks have a much lower valuation than the S&P 500 which has a forward P/E of 22. The NASDAQ has a forward P/E of 28 currently as investors are hopeful of AI driving productivity and profits for tech companies.

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