Will the market see some upside on slowing earnings growth?

Is growth across US equity markets (^DJI, ^IXIC, ^GSPC) too concentrated in just a handful of names, just as tech player Nvidia (NVDA)?

Richard Bernstein Deputy Chief Investment Officer Dan Suzuki sits down with Yahoo Finance’s Catalysts to weigh in on the relationship between valuations and the market at the tail-end of earnings season, also commenting on what the Federal Reserve’s June FOMC meeting could mean for growth trends.

“If you look at the levels of their [mega cap tech stock’s] growth, they’re very strong and they’re… much higher than the overall market. But those levels are actually starting to come down, even in the case of any of those mega caps you mentioned,” Suzuki says. “With those slowing earnings growth, I think what’s critical is the rest of the market is actually seeing the opposite in that earnings growth is going to be accelerating from here.”

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Luke Carberry Mogan.

Video Transcript

Think the market is more than happy to look past the critical little details, like how expensive the stock is as long as the market continues to go up.

Why should investors be worried about something like valuations when we are still seeing so much growth ahead, even for the the biggest gainer, like an NVIDIA moving forward?

Why does the valuation matter?

Yeah, I mean, you make a really good point, Madison, in fact, if you look historically, you know, evaluation is a terrible timing indicator, you know, it basically tells you zero about what’s gonna happen to any given stock or the overall market on a 12, even like a three year time horizon tells you very little.

Um but it does tell you where the risks are and you when you combine those risk with the fact that, you know, for the big cap tech companies, you know, their their earnings growth is actually decelerating.

So if you look at the levels of their growth, they’re very strong and they’re very, you know, much higher than the overall market.

But those levels are actually starting to come down even in the case of, of, of any of those mega caps you mentioned, you know, with those are slowing earnings growth, I think what’s critical is the rest of the market is actually seeing the opposite in that earnings growth is going to be accelerating from here.

So the acceleration that analysts are forecasting at the S and P level over the next 1234 quarters is not gonna be driven by those mega cap names.

It’s gonna be driven by the rest of the market.

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And I think that’s actually quite exciting, Dan, are you at all worried about what we’re going to be hearing from the fed over the next couple of meetings or, or, or what you’re talking about when it comes to earnings, when it comes to that investment growth that we’re, that we’re, that has really been the focus of the conversation so far.

Is that going to really outweigh any sort of hiccups that we could hear from the bank?

I mean, I think there’s, there’s a, there’s a potential risk embedded in there.

Uh I personally think people overemphasize uh you know, the importance of the Fed, especially where we are today.

You know, I think, you know, the people, we have to remember that the fed is a lagging indicator whose whole process is built around, you know, targeting and managing some lagging indicators.

You know, if you look at unemployment, you look at inflation, those are official lagging indicators.

So if you want to know what the fed is gonna do here.

I think you really have to focus more on growth.

And so it’s really growth angle, that’s gonna be the driver of FED, fed the fed’s actions here.

And I think unless you see growth surprise meaningfully to the upside or meaningfully to the downside, you know, the fed is probably gonna be, you know, not really a huge factor for the overall market.

I think people should be more focused on what earnings growth is gonna do.

And again, that’s where we’re actually quite optimistic because we, nothing we see in the data suggests that earnings growth is peaking out or rolling over.

In fact, you know, we think it could be accelerating further from here.