Things are bad for Big Techs, but not nearly 2000-bad
U.S. stock market indexes have experienced a wild swing, and the $Nasdaq Composite Index (.IXIC.US)$ down about 22% YTD for the year. The stock market has reversed on the next day from its Wednesday rally, following Fed Chair Jerome Powell taking75-basis-point rate hike off the table in June.
Jim Paulsen, chief strategist at The Leuthold Group, believes that Tech stocks may be in a bear market but it's still not going to be a burst of market bubble like the 1999 Dot-com era, FT.com reported, due to the following factors:
Robust Earnings
Although prices for tech firms are close to where they were back in 2000, earnings are much more robust comparingly.
EPS for the S&P 500 technology sector may have declined somewhat over the past two years, he says. But they remain roughly 60% above where they were back in early 2000. Tech stocks are still pretty cheap historically speaking under this measure.
Strong ROE
The chart shows that the ROE between S&P 500 tech index and the broad-based $S&P 500 Index (.SPX.US)$ is around 15% and 20% higher, which compares with a 5% premium during the 1990s boom on a relative basis.
Much lower market cap weighting
In March 2000, the market-cap weighting of the Tech sector was 34% compared to only a 7.9% weight for total economic activity. The dotcom top involved a stock market in which its leading sector was priced disproportionately above its economic contribution. Today, though, the market-cap weighting of tech to the S&P 500 is only 27.2% versus an economic weighting of 17.5%.
Is the Tech sector as cheap as it has ever been, gauged by its contribution to the general economy? No. Is it grossly overpriced or anywhere close to its relative value compared to the economy in 2000? No!
--said Paul
"Brighter" future
The forward P/E multiples for tech and non-tech stocks going back to 1990 justify for Paul's point.
The current valuation is nowhere close to the "gross overvaluation" that existed between 1998 and 2004, when the sector's P/E multiple peaked above 50 times, even as valuation of Tech sector is still slightly higher than average relative valuation going back 32 years.
Conclusion
Today's bear market in tech stocks is therefore not likely a dotcom redux, Paulsen concludes.
The bear market could stay for a while as the fed striking to achieve neutral interest rate, especially if bond yields won't stop rising and Fed fail to cool down inflation. But as far as Paulsen's concerned, the risk of a full-blown tech "collapse" is probably past.
Source: FT.com
Disclaimer: Past performance can't guarantee future results. Investing involves risk and the potential to lose principal. This article is for information and illustrative purposes only.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Jeremyx : Sounds comforting. However, FUTU keeps going down..