S&P correction could happen if GDP or profit growth slows, asset manager says

In a high valuation environment, one of two “catalysts” could cause a market correction.

That’s according to Brian Arcese, portfolio manager at Singapore-based Foord Asset Management, who said markets have been “expensive for a while” — the S&P500 is up about 23% year to date. Its price-to-earnings ratio is above 27, and some have described it as expensive on almost every level.

“We think a correction would be healthy, but you’re going to need some type of catalyst for that correction to take place. I think it could be one of two things,” he said this week. week on CNBC’s “Squawk Box Asia.”

“We are seeing a slowdown in economic growth in the United States. [It is] it’s still pretty healthy, but it’s slow, right? This can be a catalyst,” he said. U.S. GDP grew less than expected in the third quarter, according to data released Oct. 30.

“If this continues to slow down a little bit more, if we see inflation rising again, that could be a catalyst,” Arcese said. US inflation reached 2.6% in October, in line with expectations, according to figures released on November 13.

Slower earnings growth could also cause a correction, Arcese said, in an environment of high expectations.

“If we look at corporate profit forecasts for next year – even if we exclude IT and communications services where growth is exceptionally high – excluding these profits the growth is expected to be 10-12%. which is relatively high compared to history,” he said. .

Goldman SachsLast week’s stock outlook predicted profits would rise 11% in 2025.

“If you have high expectations coupled with high valuations, then if you see earnings growth start to slow, or expectations start to soften, that could be a catalyst for a correction,” Arcese said.

Factors such as U.S. GDP growth and profit growth along with falling inflation and interest rates are a relatively rare combination, Arcese said. “These factors together don’t happen that often, do they, all at the same time?” he said.

“It’s quite constructive for stocks, which is obviously what we’re seeing, and that’s why they continue to make higher highs. We think a correction would be healthy,” Arcese said .

According to Arcese, growth is not taken into account in public services. “They are more expensive than before, but (…) they remain cheaper than the market,” he declared, pointing to ESS And Edison such as shares held by Foord Asset Management.

Increased data centers and the growth of artificial intelligence require more electricity, meaning growth is “coming back,” Arcese said.

“At the same time, regulated utilities must invest a significant amount of capital in the transmission and distribution network, on which they get a return,” he said.