21Q4 U. S. technology stocks continue to adjust, with the Nasdaq down 24% year-to-date. What happened to American technology stocks?Comparing the performance of the two rounds of US stocks in 1997-00 and 20-22, this paper summarizes the macro, micro and pricing similarities, and the US stock pricing cycle may be repeating.

Two rounds of macro comparison: a typical "external shock + policy stimulus" economic cycle.Both 1997-00 and 20-22 experienced a typical "external shock + policy stimulus" economic cycle:

1) external shock downward.Economy suffered from external shocks, rapid decline (Asian financial crisis vs 20 years COVID-19 epidemic crisis).

2) policies stimulate recovery.With the full introduction of stimulus policies, monetary policy "released a lot of water" (reversing the interest rate hiking cycle and turning to three VS emergency interest rate cuts / unlimited QE/ cash subsidies), the economy repaired and recovered from a low base, and the market generated asset bubbles.

3) the policy withdraws and then falls back.In order to curb inflation, monetary policy "slammed on the brakes" (interest rate cuts turned into six VS Taper/ rate increases / contraction tables), during the same period the economy peaked and the asset bubble burst.

Two rounds of micro-comparison: a similar technology cycle from the outbreak to the peak of growth.Comparing the two rounds of US stocks in 1997-00 and 20-22, the micro level has experienced similar technology cycle trading:

1) the middle part of the high growth period of industry penetration (20%, 60%) (about 40%)Corporate growth peaked and fell, bringing a revision of long-term expectations and triggering two rounds of US technology stock adjustments.

2) the end stage of the upward profit of the enterpriseTraditional corporate profits fell first, and the market began to prefer technology stocks with relatively resilient earnings, believing that they could counter the downward earnings and give them ultra-high valuations; when the profits of technology stocks also began to fall, showing a "post-cycle" rather than "counter-cycle", the market's excessive expectation correction, valuation down.

3) other than thatAt the end of the technology cycle, there is antitrust regulation of science and technology in the United States, and the upsurge of linkage between the primary and secondary markets cools at the same time.

The experience of permeability from 2000 to 1997 is worthy of reference.1) the permeability has increased from 20% to 40%, which has become the focus of the market, and the valuation has risen rapidly. 2) when the permeability reaches about 40%, the industry is still in a period of growth, but the market inflection point is ahead of the inflection point of permeability expansion. 3) when the penetration rate reached about 40%, the industrial growth rate peaked, the economy continued to decline in the same period, and the performance of enterprises was lower than expected, which became the fuse of valuation.

How does the pricing cycle of US stocks repeat?

The valuation of earnings is expanded, and the valuation of profits is closed, which is fuelled by liquidity. 1) the two rounds of index valuations are inverted V-shaped.The forward valuation of the period index expands from the mean to more than 2 times the standard deviation, and finally returns to the mean. At present, it has fallen to near the average, observing the follow-up adjustment of earnings expectations.2) the upper valuation of earnings is expanded, and the lower valuation of earnings is collected, which is fuelled by liquidity.Valuation expansion is in the stage of economic recovery and easy liquidity; when the stimulus policy withdraws and profits fall again, valuations contract sharply.

Profit differentiation, growth > value; profit convergence, growth style profit is better than value style, style differentiation is emerging, growth style wins slightly2) the late stage of economic recoveryValue style profit downward, growth style profit is resilient, style differentiation increases, growth style wins substantially.3) period of economic recessionThe growth style makes a profit and converges to the value style, the gap of style performance shrinks, the growth style kills under the valuation, and the value style wins.

In the whole pricing cycle, the growth style valuation expansion first far exceeds the value style, and when liquidity tightens and growth stock earnings also decline, the valuation gap between growth and value will converge in an all-round way.Finally, the excess income of the relative value of growth mainly comes from the growth of EPS.If you look at this round of US stocks, so far, the US growth style has outperformed the value style by 37.7% since March 19, of which 11.4% contributed to profits and the remaining 26.3% contributed to valuation.The profit corresponds to the ROE level, the ROE difference spreads, the growth and value spread expands, the growth wins; the ROE difference converges, the growth and value spreads converge, and the value wins.

Risk tips: escalation of conflict between Russia and Ukraine, higher-than-expected interest rate hikes overseas, and spread of the epidemic beyond expectations.