The month of October has been very good for the markets, our investment mantra is always the same, “follow corporate profits” and the earnings season is being (again…) very good, continuously beating expectations. We must not ignore a key fact, the bulk of the growth in business profits falls once again on the large technology companies with strong growth recorded, therefore, it is normal for them to continue pulling the market, some with greater overvaluation than others. The game of valuations is also important, we have seen how after Alphabet and Apple had lagged behind for a good part of the year, they have revalued very significantly.
Beyond technology, we see how other sectors also participate, the Health sector, after years of chronic undervaluation, we see signs of awakening what would be great news. Within the most defensive area of the market, this sector is our favorite, there are large companies with really attractive valuations, we especially like the healthcare and hospital equipment sector.
This market has also been supported by a more accommodative interest rate environment. Another of the big differences between the current environment and the dot.com bubble of 2000 is that at that time the central banks were in rate hike mode and now it is the opposite. I insist that the current situation is different from that of the year 2000, there are similarities in the sense that we are talking about a new technology, but at the corporate level in the year 2000, companies were not making money and their growth was mainly with debt.
Looking ahead to the end of the year we see the markets with a certain altitude sickness, there is fear given that we are approaching critical levels (S&P500 to 7000) that will require several attempts to be broken, which can give us a certain fragility and volatility in the short term and at specific times. However, we are confident that a favorable macro environment combined with low interest rates and controlled inflation can continue to drive upside into next year as long as the corporate earnings cycle remains strong. Who assumes more risk, the one who is there or the one who is not there?