Spotting a stock-market bubble isn’t as easy as it sounds. And even when traders do correctly identify one, economist John Maynard Keynes’s famous warning that the market can remain irrational “longer than you can remain solvent” should still ring in their ears, says Julian Emanuel, chief equity and derivatives strategist at BTIG.
“Investors, whether overweight or underweight the NASDAQ 5, are becoming uncomfortable. Visions of Bitcoin in 2017, houses in 2006 and tech in 2000 arise,” Emanuel wrote.
But that doesn’t make for a bubble, at least not when it comes to valuation, he said, noting that the S&P 500 trading at 25.8 times 12-month trailing earnings, while elevated, still isn’t comparable to the near 30 times earnings of the dot-com era — espeically given that the 10-year Treasury yield is now below 0.6% versus the 6% level seen at the turn of the century.
From a market concentration standpoint, things look more bubbly, he acknowledged. The top 5 Nasdaq stocks now account for 23% of the S&P 500’s weighting, he noted. But the fact that it has far surpassed the 18% peak for the 2000 top five only underlines what’s been the “Keynesian futility” of positioning against the top five, Emanuel said.
There might be an opportunity forming, he said, when it comes to the “dispersion,” or the gap, between the S&P 500’s top- and bottom-performing sectors.
“Investors, whether overweight or underweight the NASDAQ 5, are becoming uncomfortable. Visions of Bitcoin in 2017, houses in 2006 and tech in 2000 arise,” Emanuel wrote.
But that doesn’t make for a bubble, at least not when it comes to valuation, he said, noting that the S&P 500 trading at 25.8 times 12-month trailing earnings, while elevated, still isn’t comparable to the near 30 times earnings of the dot-com era — espeically given that the 10-year Treasury yield is now below 0.6% versus the 6% level seen at the turn of the century.
From a market concentration standpoint, things look more bubbly, he acknowledged. The top 5 Nasdaq stocks now account for 23% of the S&P 500’s weighting, he noted. But the fact that it has far surpassed the 18% peak for the 2000 top five only underlines what’s been the “Keynesian futility” of positioning against the top five, Emanuel said.
There might be an opportunity forming, he said, when it comes to the “dispersion,” or the gap, between the S&P 500’s top- and bottom-performing sectors.
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