Research and analysis roundup from The Globe and Mail’s market strategist Scott Barlow
Citi global strategist Robert Buckland did a great job highlighting how weird markets have gotten in recent months. He noted some alarming similarities with 1999 but also some important differences,
“Growth vs Value Blasts Through 2000 Peak: This has been driven by the unrelenting outperformance of the big US Tech stocks. The last time we got to these levels, the bubble burst and a 50%+ global bear market began… Continued outperformance by more highly rated growth stocks has fragmented the typical normal distribution of market returns. However, comparisons with the 2000 peak look overdone. It was much worse back then… Growth Bubble? It Could Get Much Worse: Market leadership continues to narrow. YTD just 10 stocks account for 68% of the S&P’s gains. Tobias Levkovich highlights that the percentage of US stocks outperforming the S&P is down to 41%."
Mr. Buckland’s summary is that market leadership will likely continue to narrow to fewer and fewer companies, likely tech stocks, and growth stocks will continue to soar higher.
“@SBarlow_ROB C: Growth vs value above 2000 extremes” – (chart) Twitter
“ @SBarlow_ROB C: Growth bubble could get much worse” – (research excerpt) Twitter
“ @SBarlow_ROB Now vs 2000 - return distribution far more fragmented then” – Twitter
See also: “@NewtonGroupSM Bank of America Merrill Lynch chart showing U.S. energy stocks are at the lowest price relative to the S&P 500 since the Pearl Harbor attack of 1941” – (chart) Twitter
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The Financial Times noted the possibility of bubble-like valuations in socially responsible funds and stocks,
“Investors last year ploughed a record $21bn into socially-responsible investment funds in the US, almost quadrupling the rate of inflows in 2018, according to Morningstar… Companies with the top ESG rankings now trade at a 30 per cent premium to the poorest performers as measured by their forward price-to-earnings ratios, said Savita Subramanian, head of US equity strategy at Bank of America.
“'This is not just a function of growth stocks doing better than value stocks,'Ms Subramanian said, describing the dichotomy in US markets as ‘monstrous.’ Inflows into ESG funds, she said, ‘are driving this valuation discrepancy’”
“‘Monstrous’ run for responsible stocks stokes fears of a bubble” – Financial Times (paywall)
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The New York Times attempted to explain why equity markets are seemingly ignoring the risks from the coronoavirus,
“Bond markets have appeared markedly more pessimistic than the stock market … two-year Treasuries are yielding a mere 1.39 percent, below the Fed’s current target for overnight interest rates of between 1.5 percent to 1.75 percent. That implies investors think it increasingly likely that the Fed will cut interest rates again this year… In effect, stock investors seem to be betting that the Fed will bail them out of any damage that the virus might to do to corporate profits and the world economy.”
“Why the Stock Market Isn’t Too Worried About Coronavirus” – New York Times
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Diversion: “These Are the Most Valuable Brands in the World in 2020” – HowMuch.net
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