FXTM information and reviews
FXTM
93%
IronFX information and reviews
IronFX
92%
Libertex information and reviews
Libertex
91%
FXCC information and reviews
FXCC
90%
Markets.com information and reviews
Markets.com
89%
FxPro information and reviews
FxPro
88%
EUR/USD
1.1733
BTC/USD
42 167.25
GBP/USD
1.3643
USD/JPY
109.5245
USD/CHF
0.9220
USD/CAD
1.2778
EUR/JPY
128.5084

A bull market dependent on a few big Tech names


24 August 2020

Six months ago, the most widely followed index in the US, the S&P 500, was down 34% from its peak. Today it has not only recovered from all its losses, but also managed to hit new record highs having rallied more than 55% from its trough. Investors betting against this market have been crushed, leaving short positions at their lowest level in more than a decade. The speed and velocity of this recovery have also been exceptional. By way of comparison, during the 2008 Great Financial Crisis, it took four years to recover all the losses from the lows and almost five years to recover from the dot.com bubble sell-off. 

But the record high on the S&P 500 does not explain the full story of this market recovery. While Tech and Consumer Discretionary stocks are up 28.6% and 23.1% year to date (YTD) respectively, Energy and Financials stocks are down 41% and 21.2%. That is probably the most uneven recovery we have seen throughout history. Today the FAAMG stocks (Facebook, Apple, Amazon, Microsoft, and Google) represent 24% of the S&P 500’s $29.77 trillion market cap. A 5% rally in Apple alone contributes 0.35% to the S&P 500. In short, the S&P 500 no longer represents the 500 largest US companies but instead a handful of Tech stocks. That also means performance on the index will be vulnerable to any correction in these big names.

From a valuation perspective, the Tech titans are way overvalued compared to the index. Apple, Microsoft, and Alphabet are all trading at a forward price-to-earnings (PE) multiple above 30, Facebook is slightly below 30, while the outlier Amazon is trading at a forward PE of 83. But if we exclude these five big behemoths, the S&P 500 is only on a forward multiple of 20. While the overall index might look cheap when compared to these Tech firms, it has never traded above this multiple since 2002.

Monetary and fiscal policies may justify overstretched valuations for an extended period of time. With interest rates near zero and long-term rates expected to remain at current low levels, investors have few options to choose from and that’s why Tech firms are enjoying the limelight. However, if other sectors do not start catching up, this would send a very alarming signal.  If interest rates explained the full story, then Japan’s stocks should have been outperforming all their major peers, but that’s not the case.

Economic activity is nowhere near its pre-pandemic levels and so far, we have no clue on when a Covid-19 vaccine will arrive, and if it does arrive when the mass population will be vaccinated. The US election is another risk looming with only 70 days remaining to the big day on November 3. These risks need to be taken into consideration if one still wants to participate in this most uneven of bull markets.

#source

Related

Trading the BoE and FOMC meetings
Trading the BoE and FOMC meetings

The FOMC and the BoE meeting are firmly in our sights now, and positions and exposures will need to be managed accordingly. Certainly, the FOMC meeting could...

22 Sep 2021

Stocks bounce back after Evergrande panic
Stocks bounce back after Evergrande panic

As investors increasingly liken the Evergrande crisis with the collapse of the Lehman Brothers in 2008, they remain in the dark about the Chinese government's intentions...

21 Sep 2021

Oil Was Put on Hold
Oil Was Put on Hold

The oil price is falling after rallying before. Early in another September week, Brent is trading at $74.50 and has a lot of room to correct. The strong greenback...

20 Sep 2021

Dollar starts Fed week on front foot, stocks hit by Evergrande fallout
Dollar starts Fed week on front foot, stocks hit by Evergrande fallout

Fears of global contagion from the worsening crisis in China's property sector continued to weigh heavily on sentiment at the start of trading on Monday as markets...

20 Sep 2021

Dollar jumps, gold slumps, stocks nervous
Dollar jumps, gold slumps, stocks nervous

Worries that the US consumer is rolling over were dealt a major blow yesterday after the nation’s retail sales for August overpowered some gloomy forecasts. The retail sales...

17 Sep 2021

Energy is the play: how we get to $100 crude
Energy is the play: how we get to $100 crude

Natural gas futures in Europe and the UK are flying, while our natural gas (NG) CFD (the underlying is traded on the NYMEX) pushed over $5.60 and into 7-year highs...

16 Sep 2021


Forex Forecasts

OctaFX information and reviews
OctaFX
86%
HotForex information and reviews
HotForex
85%
XM information and reviews
XM
80%
FXCM information and reviews
FXCM
79%
Vantage FX information and reviews
Vantage FX
78%
Moneta Markets information and reviews
Moneta Markets
77%

© 2006-2021 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.