September 24, 2020

Why The Stock Market Is Poised To Disappoint For A Decade Or Longer

Stock market news live updates: Stock futures hug the flat line, steadying after rebound rally

Stock futures were little changed Wednesday evening, as investors assessed the regular-session rally and an a minimum of temporary resurgence in technology shares. The tech stocks pummeled over the past three sessions staged a rebound on Wednesday, leading the broader market higher and therefore the Nasdaq to its best one-day gain since April. However, the index remained lower by 5.4% for September so far . Amazon (AMZN) shares rose nearly 4% after losing a cumulative 10.8% over the past three sessions, and Tesla (TSLA) shares rose nearly 11% after a record 21% drop on Tuesday. The rally Wednesday came in absence of any major catalysts, as investors swooped in to get shares following the steep declines of the past several sessions. As of its price on Tuesday, the Nasdaq had fallen 10% from its recent record high last week, sending it into correction territory. “Much like there was no real reason for the drop the past three days, there was no main driver for today’s huge rally, aside from stocks were quite oversold,” Burt White, chief investment officer for LPL Financial, said in an email Wednesday. “As the election nears, we could see this continued volatility continue.” In assessing the damage over the past few days, many analysts argued that US equities – and tech and growth shares especially – were thanks to be knocked from their highs. The roller-coaster trading over the past few days came after trades in tech shares had become increasingly crowded, as investors sought out shares of companies viewed as most resilient during the pandemic. Even with the volatility over the past week, the Nasdaq remained higher by 24% for the year so far , and therefore the S&P 500’s information technology sector was up 27%, outperforming every other major sector. “Signs of uneasiness and stretched positioning within the options market are visible in recent weeks, with the put/call ratio collapsing, a particularly steep front-end VIX term structure, and unprecedented volumes of options traded in tech companies, particularly calls,” Alastair Pinder, global equity strategist for HSBC, said during a note Wednesday. “Indeed, given the unprecedented scale of options traded for the [big-tech] FAANGMs ($200 billion notional volume each day in August, vs. $70 billion at the start of January), it’s unlikely that the recent volatility has completely cleansed positioning,” he added. — Here were the most moves in equity markets, as of 6:11 p.m. ET: S&P 500 futures (ES=F): 3,400.00, down 0.25 points or 0.01% Dow futures (YM=F): 27,970.00, down 2 points or 0.01% Nasdaq futures (NQ=F): 11,404.50, up 11.75 points, or 0.1% Traders work on the ground of the ny stock market shortly after the opening bell in ny , December 28, 2015. REUTERS/Lucas Jackson TPX IMAGES OF THE DAY More — Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and reddit. Find live stock exchange quotes and therefore the latest business and finance news For tutorials and knowledge on investing and trading stocks, inspect Cashay

Singapore stock exchange May Stop The Bleeding On Thursday

No result found, try new keyword!Volume was 1.46 billion shares worth 1.21 billion Singapore dollars. Among the actives, rock bottom fell out for SembCorp Industries, which plummeted 38.74 percent – while Venture Corporation surged 3.

Why The stock exchange Is Poised To Disappoint For A Decade Or Longer

Perhaps it’s thanks to the innovation cycle, but companies seem to emerge every two-to-three decades that are so powerful, and their business models so unassailable, it becomes nearly impossible to image a world during which they might be challenged successfully. Growth prospects virtually assured, investors come to believe their dominance is permanent; and their stocks increasingly become seen as “no-brainer” investments. Innovation happens when light bulbs shine getty No-brainers are necessarily large corporations, mega-caps really, because it takes years and years of success for a corporation to create a formidable reputation. No-brainers are always the “top dogs” during a massive addressable market. Half a century ago, the no-brainers of the time were called, Nifty-fifty stocks. These were big and solidly profitable blue-chip companies holding sway over fast-growing, ever expanding markets. They included great companies like Coca-Cola KO , Disney and 3M MMM and outperformed every Index for several years, starting within the late 1960s. When the severe market of 1973 showed its ugly head, Nifty-fifty stocks initially delayed well for several months, “proving” their resilience, because the financial press observed at the time. About 20 years ago, a replacement crop of no-brainers emerged. because the Internet was becoming ubiquitous, no-brainers included large, quality companies in technology, media, and telecoms, the so-called TMT stocks. a number of the good growth companies from that era include Cisco CSCO Systems, Intel Corporation INTC and Qualcomm QCOM . I give two samples of the past half century, but the phenomenon is as old as investing. The South Seas Bubble of the 1710s is an early example. Sir Newton , the best of mathematicians, famously fell prey to no-brainer thinking and consequently nearly lost all his money. When Benjamin Graham warned investors within the 1940s that “obvious prospects for growth during a business don’t translate into obvious profits for investors,” he was pertaining to no-brainers. ‘Old School’ rocker Scientist but terrible investor getty We are once more in an Age of no-brainers and today’s crop include a number of the foremost valuable companies the planet has ever seen. you would like to travel back to the Robber Barron era of the 19th Century to seek out so few companies potentially dominating the economy during a way the six biggest no-brainers within the S&P 500, Facebook, Amazon AMZN , Netflix NFLX , Microsoft MSFT , Apple AAPL and Google (called FANMAGs), currently appear to dominate today’s digital economy. If there’s any doubt the longer term doesn’t belong to those great companies, it’s not expressed in their valuations. Bullish sentiment has propelled their stocks to record peaks and are up a 3rd from the pre-pandemic highs reached in February. Selling at 60X earnings, today’s crop of no-brainers now rival levels reached by the no-brainers of both the TMT and Nifty-fifty eras. (Source: Bespoke Investments.) the sensible effect of mega-capitalization companies selling at such high multiples of earnings means a couple of companies have, and can still have, an outsized effect on the stock exchange . it’s truly unprecedented. At the top of August, the highest 6 no-brainers comprised 24% of the S&P 500 Index and therefore the top 5 no-brainers within the Russell 1000 Index accounted for 37% of that portfolio’s value. This has given a distorted view of the seeming divide between the performance of Wall Street and Main Street this year. Yes, the stock exchange is up for the year but, aside from no-brainers, stocks are having a rough year and their performance more closely mirrors Main Street. within the S&P 500, over 100 companies remain 50% or more below their highs, while the typical stock remains 28.4% below their peaks, consistent with Cornerstone Macro Research. Mid-cap value stocks are down -15% year-to-date and little caps are off -18%, as an example . A recent Goldman Sachs GS thought experiment addresses the straightforward math of what this concentration means in practice. Assume the highest 5 companies within the S&P 500 Index decline by 10%, and therefore the next 395 largest companies trade flat. to stay the Index from falling during this example, rock bottom 100 companies within the Index would wish to just about double. Bottom line: owning the American stock exchange today through diversified Indexes represents a concentrated back no-brainers. Given the recognition of Indexing with its promise of diversification, it’s ironic the safety of people’s retirement may depend on the success or failure of a couple of stocks. the longer term for no-brainers? getty So, what can History teach us about no-brainer stocks? First, there’s always a mathematical case to be made for owning no-brainers. Simply put, the present earnings yield of the FANMAGs as a gaggle is 1.6%, but their projected yield, thanks to growing profits, is 2.4%. This compares to an earnings yield of fifty for the remainder of the S&P 500 companies. An initial earnings yield of two .4% might not seem attractive, but the market’s embedded growth assumption is for FANMAG earnings to extend by 15% to 18% a year. meaning the market believes the FANMAG yield will double twice over subsequent 8 – 10 years. consider this as meaning the “cost-basis yield” on these no-brainers, will grow from a paltry 2.4% to more like 10% in but a decade. By comparison, the projected earnings yield on the remainder of the S&P 500 during a decade is 8.14%, assuming line growth of fifty a year. there’s a narrative these no-brainers are uniquely safe, given their superior business models, scale, and growth prospects. The predictability of their cash flows is seen as not dissimilar to bonds in some circles, except better because they’re going to increase. So, if you’re a pension account manager, as an example , and by necessity take an extended view, FANMAGs could be a beautiful bet as compared to the 0.68% on offer from 10-year Government bonds. Remember, the paltry yield on the bond is fixed. Second, no-brainers tend to possess a melt-up phase thanks to strong narratives regarding their virtues and these stories prey on themselves. As stocks reach bubbly levels of optimism, many investors who did not participate within the no-brainer market develop FOMO, the fear-of-missing-out, and this sets the table for a final stampede of shopping for . Tesla TSLA isn’t a FANMAG, and maybe it’s not a no brainer as many skeptics remain, but it’s a bubble stock and is illustrative of the facility of narratives. Tesla wont to be seen mostly as an electrical auto company with some first-mover advantages, but a replacement narrative has emerged. In justifying its 10X share increase since last year, Tesla is now touted because the “category-killer” within the transformation of human mobility. Tesla Motors’ Elon Musk by Lily Lawrence/Getty Images for Oceanic Preservation Society getty Third, when the tide turns, and no-brainers share prices fall, it’s simply thanks to reduced optimism regarding their growth prospects. they’ll still grow at a quick clip for years, but if projections about growth rates are reduced, disappointing returns both for the no-brainers themselves, and “the stock market” itself as no-brainers drag the Indexes down with them, will follow. Back to the three TMT-era companies mentioned above. 20 years after making a replacement high in its stock, Qualcomm shareholders were finally “made whole” within the past year, but long-term Cisco and Intel shareholders remain within the red. Regarding “the stock exchange ,” it took nearly a decade for the S&P 500 to succeed in its Nifty-fifty levels again, and 13 years to get over the TMT-bubble. Given the concentration of no-brainers within the S&P 500 today, this point might be longer. the first reason why no-brainers disappoint investors is capitalism. Bruce Greenwald uses the metaphor of a mythical no-brainer company called Top Toaster. Top Toaster’s rate of growth , and its high returns on capital, gradually drop as competitors seek to hitch the party. this may drive incremental returns lower, towards its cost of capital, thereby dragging its P/E multiple ever lower. this is often the longer term of nearly all companies says Greenwald, a professor at Columbia University , because “in the end of the day , everything may be a toaster.” it’s important to know the implications of a lower P/E multiple. Currently, the FAANGs are priced as if their earnings will grow 15% perpetually. What if that assumption changes tomorrow and therefore the market’s growth assumption drops to a still fantastic 12%? Answer: the mathematics imply the stocks will drop in 26%.

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