13 Nov 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%.