Daily Brief - Bubble or Justified Bull?

TLDR: Are we in the midst of a market bubble, or is the bull market's vigor fundamentally justified? The anticipation is palpable, with the Federal Reserve's interest rate decisions casting a long shadow over the debate.

Taking center stage in this financial saga are the valuation multiples of the "Magnificent 7," notably Nvidia, Meta, and Microsoft. These tech giants, with their eye-watering price-to-earnings (P/E) ratios, have been the propellants of the S&P 500's record heights.

Nvidia's P/E ratio, for instance, reflects its dominance in AI and gaming, while Microsoft's cloud and productivity services justify its valuation. Meta, on the other hand, navigates through the murkier waters of social media and advertising, with its P/E ratio drawing scrutiny amid shifting digital landscapes.

The argument boils down to whether these P/E multiples are a harbinger of speculative excess or a rational appraisal of future growth. Critics, echoing Marko Kolanovic of JPMorgan's caution, see a mismatch between lofty valuations and the potential earnings headwinds of 2024.

Optimists, channeling David Kostin of Goldman Sachs' confidence, argue that these multiples are well-earned badges of innovation and market leadership.

In the end, the direction of interest rates will undoubtedly sway market sentiment, potentially validating the bulls or emboldening the bears.

Market Movers: Market valuations are at highs:

Here are the historically best and worst performing sectors when SPX's P/E is above 23:

Over a 6-month horizon, the top 3 performing sectors are:

1. Real Estate, with an average return of 11.17%
2. Energy, with an average return of 9.585%
3. Financials, with an average return of 5.63%

The bottom 3 performing sectors are:

1. Communication Services, with an average return of -6.6467%
2. Materials, with an average return of 0.3433%
3. Consumer Staples, with an average return of 1.095%

Asset Spotlight: Alibaba at lows (again)

In the last 6 occasions where Alibaba price was below $72, Toggle's analysis showed a median upward trend in the price of the asset over the subsequent 3 months.

Alibaba's stock continues to trade at lows primarily due to concerns over regulatory crackdowns by Chinese authorities, slowing economic growth in China, and heightened geopolitical tensions, all of which have significantly impacted investor sentiment and the broader tech sector in the region.

Earnings Update: JD.com reports tomorrow

For the current quarter, JD.com is estimated to report an earnings per share (EPS) of $0.63, with a revenue estimate of $41.68 billion. For the next quarter (March 2024), the EPS average estimate is projected to increase to $0.71, with a revenue estimate of $35.48 billion. These figures suggest a year-over-year sales growth of 5.50% for the next quarter, highlighting an optimistic outlook on the company's revenue growth trajectory.

This outlook on JD.com's performance is crucial for understanding the dynamics within the e-commerce sector in China, especially in comparison to Alibaba.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.