Quick Bites | Boom or bubble?

Are US stocks forming a bubble? Everyone has an opinion, and those opinions are all over the place. Some say that the dramatic rally in equities and Bitcoin’s surge above $60,000 suggest there is a bubble. Nvidia’s recent surge is perhaps indicative of froth in the market. We tend towards viewing the market surge as reflecting that:

• Rates will be coming down (sooner or later).
• Stock valuations are high because fundamentals are good.
• We are yet to reach extremes that would suggest a bubble.

But without a doubt, it is rapidly approaching time to be a bit more cautious.

Source: Goldman Sachs 

While the S&P500 index at 20x is certainly lofty, it is not unprecedented. Furthermore, if one equal-weights the 500 listed companies, the price-to-earnings (PE) multiple falls to only 16x (the Index is cap-weighted). It is the mega-cap technology stocks that are pulling the Index higher.

Source: Goldman Sachs 

This worries many commentators because it suggests that the so-called Magnificent 7 (Mag 7) are over dominating the index, now comprising 29%, with “exuberant” valuations for these technology giants. The counterargument is that the Mag 7 demonstrate superior growth in both profitability and revenues, justifying their premium valuations.

Source: Goldman Sachs

Disclaimer: Clime Asset Management Pty Limited | AFSL 221146 | ABN 72 098 420 770.  The information provided in this post is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information contained therein. Please consider the relevant disclosure document/s before investing in one of our products. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Investors risk losing some or all of their capital invested. Past performance of financial products is not a reliable indicator of future performance or returns.