Sign up to save your podcasts
Or
Share One of Those Times
Share to email
Share to Facebook
Share to X
Share to email
Share to Facebook
Share to X
Or
One of Those Times
The stock market serves a very important function in our society, helping to steer excess savings (capital) to its most productive uses and ultimately contributing to faster economic growth and rising living standards. Most of the time, the stock market is reasonably effective in this role. Occasionally, however, the market’s capital allocation mechanism seems to break down as excessive investor optimism or pessimism drives the prices of certain stocks and sectors to extreme levels that are largely disconnected from their underlying fundamentals. This appears to be one of those times.
Show Notes:
Chart referenced: S&P 500: % Allocated to Tech & New Economy Stocks
Important Disclosures: https://www.bosinvest.com/disclosures.
* The sources for this article are Morningstar and Yahoo Finance unless noted otherwise.
1 SPAC stands for special purpose acquisition company. Per Jeremy Grantham, founder of GMO, there were 480 IPOs in 2020 of which 248 were SPACs.
2 These five companies’ earnings per share grew by an average of 25% in 2020 based on actual results through September and estimates for the fourth quarter.
3 NASDAQ Composite Index: A market capitalization-weighted index of common equities listed on the Nasdaq stock exchange. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An index is unmanaged and not available for direct investment.
4 S&P 500 Index: A market capitalization-weighted index that generally contains the 500 largest publicly traded stocks in the U.S., subject to certain restrictions. An index is unmanaged and not available for direct investment.
5 Per data from Yale economist, Robert Shiller, the CAPE ratio of the S&P 500 was 34.3 as of 12/31/20. This was its highest level over the past 100 years with the exception of the tech bubble in the late 1990s.
6 Technology and other new economy stocks comprised 22% of the MSCI ACWI ex USA Index, a broad index of developed and emerging market stocks, as of 12/31/20.
7 Per data from Research Affiliates, the CAPE ratio of the MSCI ACWI ex USA Index was 18 as of 12/31/20.
View all episodes
By B|O|SThe stock market serves a very important function in our society, helping to steer excess savings (capital) to its most productive uses and ultimately contributing to faster economic growth and rising living standards. Most of the time, the stock market is reasonably effective in this role. Occasionally, however, the market’s capital allocation mechanism seems to break down as excessive investor optimism or pessimism drives the prices of certain stocks and sectors to extreme levels that are largely disconnected from their underlying fundamentals. This appears to be one of those times.
Show Notes:
Chart referenced: S&P 500: % Allocated to Tech & New Economy Stocks
Important Disclosures: https://www.bosinvest.com/disclosures.
* The sources for this article are Morningstar and Yahoo Finance unless noted otherwise.
1 SPAC stands for special purpose acquisition company. Per Jeremy Grantham, founder of GMO, there were 480 IPOs in 2020 of which 248 were SPACs.
2 These five companies’ earnings per share grew by an average of 25% in 2020 based on actual results through September and estimates for the fourth quarter.
3 NASDAQ Composite Index: A market capitalization-weighted index of common equities listed on the Nasdaq stock exchange. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An index is unmanaged and not available for direct investment.
4 S&P 500 Index: A market capitalization-weighted index that generally contains the 500 largest publicly traded stocks in the U.S., subject to certain restrictions. An index is unmanaged and not available for direct investment.
5 Per data from Yale economist, Robert Shiller, the CAPE ratio of the S&P 500 was 34.3 as of 12/31/20. This was its highest level over the past 100 years with the exception of the tech bubble in the late 1990s.
6 Technology and other new economy stocks comprised 22% of the MSCI ACWI ex USA Index, a broad index of developed and emerging market stocks, as of 12/31/20.
7 Per data from Research Affiliates, the CAPE ratio of the MSCI ACWI ex USA Index was 18 as of 12/31/20.