MEGA SIZED GROWTH IS PRICED FOR 25% ANNUAL PROFIT GROWTH FOR THE NEXT DECADE

Bloomberg writes at the start of this quarter the top flying US stocks—aka mega sized technology—was priced for profit growth of a staggering 25% every year for the next decade.  The actual rate over the past five years was more like 12%.

Value equities, which encompasses almost everything else, is priced at a 4% pace of profit expansion, 50% below their norms.

Bloomberg further write growth reached the highest valuation versus value since at least the dot com bubble.

Moreover Bloomberg opines US technology is currently the most crowded trade in history, an environment that has existed for at least three years.  This crowdedness has been the source of great angst but fighting the trend has been detrimental to one’s career.  All must remember the markets can remain irrational one more day than a person can remain solvent or convicted.

Commenting about yesterday’s market activity, equities pared an advance following the President’s comments that offered no new information about a trade deal.  Treasuries were nominally higher.

Many have commented the recent rise in the 10-year Treasury has caught many by surprise.  Six weeks ago consensus believed a 1.25% yield was all but inevitable.  Yesterday the 10-year closed around a 1.95% yield with some suggesting a broaching of the psychological 2% level as all but inevitable.

Goldman has opined if yields definitively exceed 2.0% a further significant selloff is all but inevitable given the hedging around such levels.

The reason for the increase in yields…stronger than expected domestic and global growth.  Today the CPI is released.  Will the data suggest a rise in inflationary pressures, the result of low unemployment and stronger than expected growth?

Analysts are expecting a 0.3% overall increase and a 0.2% gain on the core level.

Last night the foreign markets were down.  London was down 0.49%,  Paris down 0.45%  and Frankfurt down 0.76%.  China was down 0.33%,  Japan down 0.85%  and Hang Sang down 1.82%.

The Dow should open moderately lower on trade and unrest in Hong Kong.   The 10-year is up 16/32 to yield 1.88%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.