Why This Bull Market Remains Misunderstood: Insights from Alpine Macro

Last updated: July 7, 2024

sign_pointing_to_the_wall_streetAnalysts have consistently underestimated this bull market, says Alpine Macro.

Despite widespread skepticism, the investment firm believes equities will continue to exceed expectations, driven by broadening earnings growth and a resilient economy.

By midyear, the S&P 500 has outperformed Wall Street’s top price targets for 2024, revealing a stark disconnect between market performance and analyst predictions.

Fund flows echo this miscalculation, with investors underexposed to equities during this rally.

Several factors contribute to this misunderstanding, according to Alpine Macro. Notably, the anticipated recession has not materialized. Instead, there’s been a rolling profit recession in some sectors rather than a broad decline.

Mega tech companies have emerged as a unique block, less vulnerable to macro influences, propelling the U.S. large-cap equity index forward.

These developments have accelerated corporate earnings, surpassing expectations and attracting global capital, boosting valuations.

“Their asset-lite characteristics also make them more immune to interest-rate policy,” notes Alpine Macro. The firm argues that in times of high uncertainty, Mega Tech’s visible quality growth justifies large valuation premiums.

Broadening earnings growth fuels the current bull market, with sectors surviving rolling recessions now poised for stabilizing revenues and expanding profit margins.

Historical trends suggest business profit margins bounce back soon after major cycle troughs, hinting at further upside.

“Our corporate earnings model projects earnings of approximately $59 in Q2, and closer to $240 on an annualized basis,” the report states. A bottom-up estimate points to an even better outlook, nearing $250 for this year.

Alpine Macro’s aggressive bull thesis includes a potential “catch-up” in valuations for the broader market, aligning it with the high valuations enjoyed by Mega Cap leaders.

If the rest of the market experienced similar expansion, the S&P 500 could reach closer to 6,500, though this is a stretched assumption.

Their fair-value model suggests a P/E multiple of 20x for the index, implying a price level of 5,200. Keeping Mega Tech valuations constant, this multiple applied to the rest of the index would produce a price level of 5,700.

“Given our expectation for the trajectory of earnings growth, we find this to be a reasonable intermediate target,” the strategists conclude.

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Co-Founder & Chief Editor
Jon Morgan, MBA, LLM, has over ten years of experience growing startups and currently serves as CEO and Editor-in-Chief of Venture Smarter. Educated at UC Davis and Harvard, he offers deeply informed guidance. Beyond work, he enjoys spending time with family, his poodle Sophie, and learning Spanish.
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LJ Viveros has 40 years of experience in founding and scaling businesses, including a significant sale to Logitech. He has led Market Solutions LLC since 1999, focusing on strategic transitions for global brands. A graduate of Saint Mary’s College in Communications, LJ is also a distinguished Matsushita Executive alumnus.
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