US stocks to the moon
I made a few casual observations about US stock markets the other day here.
Having fallen by about 17 per cent over a 3½ month period, the S&P 500 index surprised almost everyone and took only about 4 months to recover.
Markets are still open in the US but the S&P 500 is presently trading above its previous closing high at 2,935.
The NASDAQ is also trading at a record high index reading of 8,127.
It's interesting to note how even one of the most famous 'bubbles' in history - the tech stock bubble of the late 1990s - is now consigned to history, with its typical trading range of around 3,000 to 4,000 now looking less outlandish, even if prices did blow off maniacally for a few trading days.
Arguably markets had correctly identified that tech would become a huge part of the economy over time - even if many individual component stocks would inevitably fail.
But valuations were then temporarily slammed by lower expectations of nominal GDP growth, leading to an opposing over-correction on the downside.
But valuations were then temporarily slammed by lower expectations of nominal GDP growth, leading to an opposing over-correction on the downside.
The NASDAQ has returned ~700 per cent over the past 10 years as valuations have once again run high (seemingly outrageously high in some cases).
I looked at whether people are able to recognise irrational market bubbles on a timely basis here, including in tech stocks, from around the 25 minute mark in this video.
Caveat emptor
A few short observations to conclude here.
Firstly, note the inherent unpredictability of markets over the short term.
Last year even experienced observers had stated in no uncertain terms that stock markets would be hit painfully, and yet here we are at record highs within around 7 short months of the preceding peak.
Secondly, this is clearly still a time to exercise caution.
Not only have some valuations run high, there have been numerous indicators of exuberant behaviour across markets from cryptocurrencies to electric vehicles, online shopping, media service providers, and many others besides.
And thirdly, US stock valuations that take into account interest rates and expectations thereof look somewhat more favourable than they did, but here too there remains a case for caution since monetary policy seems to have become more influenced by stock markets than it once was.
