Posted on Jan 15, 2021 at 7:26 am
Do you see a bubble in US stocks, especially in “tech”?
Equities have risen sharply and are reaching, in absolute terms, historic valuation levels. In the short term, a slowdown in the increase cannot be ruled out. But it is not a bubble, likely to burst suddenly, in our opinion. First, there is nothing unreasonable about the rebound that began in March. It is comparable to that observed from March 2009, over a similar period of time. It is fueled by the massive support given to businesses by monetary and fiscal policies. Second, valuations are largely a function of the level of interest rates. Central bank benchmark rates are at the bottom for a long time and bond yields on government bonds are also close to zero. The yield differential with equities remains significant, even after the last phase of the upswing. The relative valuation of equities is therefore lower than its historical average. As for “tech” stocks, their situation is very different from that of the end of the 90s. At the time most companies were not profitable while they are now making very substantial profits.