The stock market in the United States continues to outperform, up to all-time highs, and offering incredible returns to those willing to invest at such high valuations. When buying a company’s shares, investors always look at future cash flows and the way the business will perform in the years to come and discount the future cash flows to reach the present value.
Due to that, companies trade at multiples – for instance, one company may trade at 20 times its price/earnings ratio. To many, this is a mile too much, and the company looks overvalued, but others may see even more potential ahead and still bid for the price.
Nasdaq 100 is up almost 30% this year – yes, a year when the global economy is in a recession, the U.S. elections are just around the corner, and a pandemic threatens the society as we know it. But it is not only Nasdaq100 – all indices in the United States are on the rise, with the tech sector on a tear higher.
Some Numbers Behind the Stocks’ Amazing Run
Facebook was up yesterday 8%. In such a strong, bullish market, it is not something strange to see one of the largest companies in terms of market capitalization, making a run at the highs. What is curious is that the move to the upside comes on the day that management announced that its ad revenues would be significantly impacted by upcoming changes in the IOs terms and conditions. Yet, the company’s share price surged.
Seven stocks gained yesterday more than $300 billion in market capitalization. In one single day! Facebook, Salesforce, Amazon, Microsoft, Alphabet, Apple, and Tesla – all part of the big tech revolution. As a comparison, this is roughly the size of the gold production for an entire year. Or half the Swiss GDP. Even more interesting, it is almost the entire market capitalization of all cryptocurrencies. In one single day!
Does it show a declining USD? Not necessarily. For example, while Nasdaq100 was up 2% yesterday, the Russell 2000 was down more than 0.5%. In other words, not all stocks rise at the same time and at the same pace. Hence, the USD is not sold across the board.
Examples like these are usual in a bullish market. Yet we keep forgetting that each recession is unique, and the upcoming bull market often takes us by surprise.
Just like the 2020 bull market did.