US Equities – simply momentum or something more fundamental

Like that historic era, earnings growth in the tech sector today is outpacing the growth of the rest of the US economy.  As I review the trading screens of the S&P500 index last week they were screening expensive, at the extreme end of the two standard deviation range. In a chartist’s world, it is a signal to sell and reduce exposure to the over-priced assets.

But hold on; are we seeing the same risk of a bubble bursting in 2024 like the one that did so dramatically during the dot com crash of the early 2000’s? Could history repeat, or is it different this time?

But this time it’s different. Again?

Is the market that much different today when compared to the late 1990s? Today share prices are being driven by the quality and scale of the earnings and revenues of the large cap stocks. Unlike the late 1990s, when profitable stocks were underperforming momentum stocks until just before the downturn of the market, today the profitable stocks are correlating closely with momentum, and that is consistent with their long-run relationships (correlation 0.62).