Analysts at investment bank BMO Capital Markets expect a rally stock market in the U.S. in the fourth quarter. The expert sees several reasons for the stock market rally, reports Business Insider.

Companies are already cheap relative to projected profits

Markets are focused on the future, and investors will soon return to stocks and ignore the current difficult macroeconomic situation caused by rising inflation.

About two-thirds of stocks are trading at a discount

Another indication that stocks are undervalued and we are in for a rally in the US stock bear is the fact that about 66% of the S&P 500 Index securities now have a forward P/E ratio below their historical averages.

Cyclical stocks and growth stocks are worth less than protective stocks

In contrast, securities from cyclical sectors such as consumer staples, energy and financials are trading at a discount relative to their forward P/E average. The same is true for communications services and IT.

Earnings forecasts are down, but may be up at the end of the third quarter

Fears that companies will record a big drop in profits are greatly exaggerated. The next earnings season, which begins in mid-October, will restore investor calm and spark a rally in the US stock bar.

Earnings forecasts are better now than at the end of 2021

Usually between January and September, earnings forecasts for S&P 500 companies are down 3.8%. This year, however, analysts have raised their estimates by 0.5%, despite high inflation affecting business margins.

Profits continue to rise

In the third quarter, profits are expected to grow at an annualized rate of more than 3%. That said, it’s also expected that in each of the four quarters, companies will record exactly the growth, not the decline, in profits.

The fourth quarter is the best time for stocks

The S&P 500 tends to end the year with strong gains. According to the BMO, since 1945, the index has averaged a 4.4% gain in the fourth quarter (not including 2008 results).

Losses in the previous three quarters lead to a rally in U.S. stock bear in the fourth quarter

Strong declines in the first three quarters of the year historically form the basis for outstanding results in the fourth quarter. For example, with the S&P 500 down more than 20% in September, the index cut its losses, climbing an average of 9.6% per quarter.

Earlier, we reported that European bourses were up noticeably in trading on Tuesday.