The Nikkei Stock Average surged 1,654 yen to close at 63,339 on May 22, marking its second consecutive daily gain and hitting a record high for the first time in seven trading days, surpassing the previous record of 63,272 set on May 13. Buoyed by strong earnings from NVIDIA the previous day, AI and semiconductor-related stocks regained upward momentum. The swift rebound underscored the market's underlying strength, following a five-day losing streak through May 20 that temporarily dragged the benchmark down to the 59,200 yen level and fueled correction fears.

Market participants noted that the Nikkei's forward price-to-earnings (P/E) ratio, which stood around 20x in early May, has declined to the 17x range. The forward earnings per share (EPS) for Nikkei constituent stocks rose to near 3,470 yen, which analysts largely attributed to the inclusion of Kioxia Holdings <285A> in the index in April. Kioxia's projected net income for this fiscal year is estimated to exceed 3 trillion yen, with the company's forward consolidated P/E ratio calculated at around 7x.

While the "P/E 20x ceiling" for the Nikkei has long been cited, a recalculation based on this fiscal year's forward EPS at a P/E ratio of 20x implies a level of approximately 69,400 yen, suggesting room for further gains. Major brokerages are increasingly forecasting the Nikkei to reach 70,000 by year-end. Although the market remains heavily influenced by Kioxia and other AI and semiconductor-related stocks, market players say the 70,000 threshold is now naturally coming into view.

However, the near-term market is likely to be swayed by geopolitical tensions involving Iran. If an end to hostilities between the U.S. and Iran comes into sight, the market could rise further alongside falling crude oil prices, but "if fighting resumes, the market could turn volatile," market participants said. With rising long-term interest rates under close watch, investors are focusing on upcoming inflation indicators and events next week. Specifically, the U.S. Personal Consumption Expenditures (PCE) Price Index will be released on May 28, followed by the Tokyo-area Consumer Price Index (CPI) for May on May 29. Bank of Japan Governor Kazuo Ueda's remarks at an international conference on May 27 are also drawing keen attention.

Other key events next week include U.S. markets closing on May 25 for Memorial Day. On May 28, the U.S. will release revised first-quarter GDP and April new home sales figures. Corporate earnings announcements are scheduled from Salesforce.com and Synopsys on May 27, followed by Costco Wholesale , Dollar Tree , and Dell Technologies on May 28.

Domestically, April national department store sales will be released on May 25, the April Corporate Services Price Index on May 27, and the April unemployment rate and job openings-to-applicants ratio on May 29. On the corporate front, SHIBAURA MACHINE CO., LTD. <6104> will report earnings on May 25, DyDo GROUP HOLDINGS,INC. <2590> on May 26, and Tri Chemical Laboratories Inc. <4369> on May 29. The expected trading range for the Nikkei Stock Average next week is approximately 61,800 to 64,100 yen.

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.