The Conservative Cave
Current Events => Economics => Topic started by: Ptarmigan on January 24, 2024, 09:23:17 PM
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Dotcom History Rhymes For Nasdaq As Fed Cuts Loom
https://www.zerohedge.com/markets/dotcom-history-rhymes-nasdaq-fed-cuts-loom
Authored by Ven Ram, Bloomberg cross-asset strategist,
History shows that stocks are well poised to gain before the Federal Reserve starts slashing rates, but daunting valuations for technology names suggest that the S&P 500 may outperform the Nasdaq in the first half of the year.
Both the S&P 500 and Nasdaq 100 baskets have traditionally rallied in the interregnum between the end of a Fed tightening cycle and the start of policy loosening, except on one occasion: the 2000-01 cycle, when the markets were caught deep in a bubble.
(https://cms.zerohedge.com/s3/files/inline-images/2024-01-24_11-20-17.jpg?itok=wjHDzutQ)
Could we see a tech bubble like in 2000-2001?
In fact, the 3.25% prospective earnings yield on stocks is tantamount to the basket trading as though the Fed’s fund rate has already fallen to those levels, even assuming that they can trade pari passu with the benchmark rate.
(https://cms.zerohedge.com/s3/files/inline-images/2024-01-24_11-21-11.jpg?itok=EwuPjo7P)
The fair value of the Nasdaq is 12,877 when the technology basket is viewed as a long-duration bond.
Under conditions of stable long-term interest rates and steady dividend growth rates, that valuation can’t turn on a dime.
That fair value suggests that technology stocks are now trading at a rich premium of more than 30%. That excess may be thought of as the price that the markets are assigning to the growth potential of artificial intelligence.
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When the Fed begins to pivot and lower overnight rates it will allow the government to spend more money it doesn't have and that will of course drive inflation up and because of the law of supply and demand, scarce money (dollar value) will most likely push consumer interest rates up.
Having said that I personally would rather the S&P 500 correct itself sooner than later.