a speculative bubble in the stock market
“We are wondering whether a bout of irrational exuberance might push the multiple higher, inflating a speculative bubble in the stock market as occurred during the late 1990s.”
Consider the seven largest tech firms that also include Apple, Alphabet, Amazon.com, Meta Platforms and Tesla.
Trading at 49 times profits, the cohort looks very expensive next to a P/E ratio of 17 for the average stock in the S&P 500.
Ed Yardeni Bloomberg 24 januari 2024
Just 25 days into 2024, the S&P 500 has already blown past the Wall Street consensus target for its performance for the end of this year.
The unbridled optimism is grounded in the promise of artificial intelligence that caught fire with the arrival of the ChatGPT app in November 2022. That rationale has lost its novelty now, but it’s still bringing the market to levels that have caught even the greatest optimists off guard.
The parallels between the speed of this rally and the definitive melt-up that lasted from 1998 to early 2000 are eerily close. It’s easiest to compare Nvidia, by far thought most likely to benefit the most from the new technology, to Cisco Systems Inc. back then.
Handily, the earlier melt-up dated from a surprise pivot by the Federal Reserve in October 1998, and the current one got going on almost exactly the same day of 2022 — after a surprise pivot by the Fed. Here is how Cisco’s and Intel’s performance to their peak in March 2000 compares to Nvidia’s rise to date:
John Authers Bloomberg 25 januari 2024
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