Replies to post #322425 on SPDR S&P 500 (SPY)

[DowDeva]

OT: There I go making friends and influencing people again.

LOL

[spartex]

Hey DD, sorry if my reply back appeared completely specious. Wasn't trying to drop any names or ego, but I will give the link to your site a second try. Its just that my first blush impression is that this sites claims aren't supported by a foundation of evidence. I will look deeper, in case there is more I am missing.

[No-Quarter]

Its a long read, but for some reason, I think you will appreciate this -

https://blog.evergreengavekal.com/have-equities-become-a-bubble/

Source located here - https://www.realclearmarkets.com/

Conclusion
Mike Tyson used to say, “everyone has a plan, until I punch them in the face.” To some extent, the same is true of equity investors: each of us has a plan, even as we acknowledge that the punches can come from every different direction.

This year, the punch in the face came from the Covid-19 pandemic, an exogenous shock of a severity seldom seen before. And this punch in the face has split global equity markets into four sub-groups, each with very different drivers and trajectories.

Big tech. The current market darling, big tech is loved by investors for its perceived ability to deliver growth almost regardless of underlying economic conditions. Today, big tech is displaying a number of bubble attributes, including growing divergence between share price performance and earnings, parabolic share price appreciation, and increased retail participation. Most importantly, it is priced as a scarcity asset, when historically tech has been anything but scarce.

Covid victims, including airlines, cruise lines, restaurants, hotels, car rental companies and casinos. Some of these may never have been great businesses to begin with. Airlines and cruise lines have always tended to be fairly cyclical businesses, with a high capital intensity and more often than not the need to run at high capacity to generate profits. Yet somehow retail investors have flocked to this segment of the market like moths to a flame. Examples abound, including the sale of shares by Hertz and the growth in assets under management of JETS—the airline ETF—from US$50mn at the start of the year to US$1.5bn today. In the last few weeks, the wind seems to have gone out of the Covid victims’ sails. That may be because the Covid news around the world has been discouraging, or it may be because these businesses were not that inspiring to begin with.

Bond proxies, including consumer staples, big pharma and utilities. These stocks have also gone nowhere in recent weeks. That could be because they are unexciting, or it could be because bond yields are no longer falling, and the US dollar has stopped rising.

Cyclicals, financials and emerging markets. This is the part of the market that will thrive if the prevailing investment environment over much of the last decade—a strong US dollar, weak global growth and weak inflation—starts to change.

A few weeks ago, global equity markets were being pushed higher by a combination of the first and second baskets: big tech and Covid victims. In recent weeks, this has shifted and instead the bull market is being driven by a combination of big tech and the fourth basket: cyclicals, financials and emerging markets. As a result, while most major equity markets are still down year-to-date, which makes sense given the magnitude of the economic shock, two markets have bucked the trend: the Nasdaq with a 17.6% YTD gain and China’s CSI 300 with a 15.3% YTD US dollar advance. The first of these—big tech—depends on a strong US dollar to thrive. The second—China—tends to do best when the US dollar weakens.

As a result, the next move in the US dollar is likely to dictate whether the relative performance of big tech surges to new heights, or whether a new bull market centered on China takes hold.