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.

Major European stocks rose by an average of 1.4-2.8% on Tuesday, trading data showed.

The biggest European stock exchanges today are as follows: Britain’s FTSE 100 index is up 1.44% to 7,007.75 points. France’s CAC 40 is up 2.76% to 5,953.99 points, and Germany’s DAX is up 2.31% to 12,489.49 points.

Investors on European stock exchange markets were optimistic about the last trading on the American stock markets, which finished the trading session on Monday with growth of 2% and more.

Also, they paid attention to corporate news from Germany. The head of Volkswagen automobile concern Oliver Blumet told the Handelsblatt newspaper that he intends to bring all the subsidiaries to initial public offerings on the stock exchange, but for now “as a training”. He justified this decision by the success of the Porsche IPO. Against this background Volkswagen shares rose in price by more than 1%.

Traders also paid attention to BMW’s auto deliveries in the third quarter, which rose 3.2% YoY to 78,031.

Earlier, we reported that U.S. stock market indices fell 1.5-1.7%.

The U.S. stock market finished Friday’s trading with a fall. At the same time U.S. stock market indices declined also on the results of September and the whole third quarter.

Investors remain concerned about high inflation and attempts by the Federal Reserve (Fed) and other central banks to contain price pressures by aggressively raising interest rates. At the same time, the U.S. stock index fund on Friday was under the influence of rebalancing investor portfolios on the final day of the third quarter. Also, the market was assessing fresh statistical data that indicates the “health” of the U.S. economy.

U.S. household spending rose 0.4 percent in August compared with the previous month, according to a report from the nation’s Commerce Department. Experts polled by Bloomberg news agency forecast an average increase of 0.2%. Americans’ incomes rose 0.3 percent, as expected. Consumer spending accounts for about 70% of the U.S. economy.

The statistics also showed an increase in the rate of core inflation in the country, which speaks in favor of further tightening of monetary policy by the Federal Reserve. The PCE Core Consumer Price Index, which excludes food and energy costs, rose 4.9% year on year in August after rising 4.7% the month before.

Against this backdrop, Fed Vice Chair Leil Brainard’s statement about the need for continued efforts to fight inflation until final goals are reached sends a clear signal to U.S. stock market indices to continue the policy of raising rates.

“Monetary policy needs to be tight for some time to make sure inflation is moving toward the target level,” Brainard was quoted as saying by CNBC. – So we don’t intend to stop (raising rates) prematurely.”

The U.S. consumer confidence index rose to 58.6 points in September from 58.2 points a month earlier. Final data from the University of Michigan, which calculates the index, showed that. Preliminary data had suggested the index had risen to 59.5 points this month, and analysts surveyed by Trading Economics did not expect a revision.

• The Dow Jones U.S. index fell 500.1 points (1.71%) to 28725.51 points in late trading.
• Standard & Poor’s 500 lost 54.85 points (1.51%) to 3,585.62 points.
• The Nasdaq Composite fell 161.89 points (1.51 per cent) to 1,575.62.

All three U.S. stock indices recorded their biggest decline since 2002, from January to September.

Earlier, we reported that Asian stock markets were trading mixed.