Goldman Sachs says this tech stock rally is grounded in reality
https://www.marketwatch.com/story/goldman-sachs-says-this-tech-stock-rally-is-grounded-in-reality-9ee03ea6David Kostin, in a note to clients, says companies that have an enterprise value-to-sales ratio of at least 10 account for 24% of the total U.S. stock market cap, versus 28% in 2021 and 35% in the late 90s tech bubble.
...
Kostin notes the number of stocks with those elevated valuation ratios has declined very sharply. “Unlike the broad-based ‘growth at any cost’ in 2021, investors are mostly paying high valuations for the largest growth stocks in the index. This dynamic more closely resembles the Tech Bubble than 2021. However, in contrast with the late ’90s, we believe the valuation of the Magnificent 7 is currently supported by their fundamentals
(he also says the cost of capital is lower now, which is good for stocks)
... that said, my reading is that they're essentially saying "this time is different" -- which often are the 4 most dangerous words in investing & finance. And this being a prognostication by Goldman, my continuing reaction is to 'fade' such advice if I want to preserve capital and/or make money for ME.
My own sense? There's a bullish euphoria starting to build in the markets/financialp0rn punditry -- FOMO is keeping stocks elevated these days and my sense* is that this run doesn't go on too much longer before consolidation. IMO, the only thing that will goose stocks significantly higher is if/when rates come down and the purported trillions in cash and cash-like assets move back into equities. But Valuation? WCoC? Not going to do it by itself.
* somewhat more accurate than a 'Magic Eight Ball'
Comments
Well, it's been raining all weekend here in Northern CA, so I finally reworked the paper into a format that was, for me at least, readable. And in fact the paper proved to be highly readable, and interesting.
In that paper Mr. Solow made an observation that might easily apply to this thread:
"I conclude only that people ought to stiffle the tendency, in matters that they do not understand, to project the last six months into an irreversible trend."
He wasn't discussing the financial markets, but his observation might be valid here as well.
Bears now hibernate. Those waiting for a pullback have been left in the dust. This bull can run for quite a while. We have seen this movie before. Even if valuations are presently somewhat irrational (debatable), they can become MUCH more irrational.
At least for today, value funds outpaced growth funds. Bonds in general are moving up.