Froth Flecks Tech And Beyond In Markets


Not just on your cappuccino.

In your portfolio.

At the very moment the period is being put on the end of this sentence, the equities markets are roaring ahead. As per usual, it seems. The Dow Jones Industrial Average is up 300 points headed into the end of Thursday. Tech-heavy NASDAQ is up 53 points, or about 80 basis points.

But, Wednesday. Consider the fact that on that day, investors seemed to rotate from tech into financials. The NASDAQ that day slipped 1.3 percent, while financials were up 1.8 percent as a group. The headlines may be centered on the fact that investors are stoked over tax reform, which means higher profits for corporates, which then means fatter bottom lines. And if Wall Street is focused on earnings (which of course it is), all else being equal, stock prices should rise, if multiples paid for those earnings rise too, or even if they stay the same (in this case, the denominator of the PE ratio gets a boost, so the P gets a boost).

The tech mindset may be dominated by juggernauts like Amazon, Apple and Alibaba, and we’re being alliterative here. But think of firms like Tencent, where stock prices have soared more than 100 percent year to date, and folks opine breathlessly over market caps in the hundreds of millions of dollars (Tencent and Alibaba have jockeyed around the $500 billion mark as of late). Technology as darling sector stands out even amid a bull run that has helped fatten wallets and portfolios and retirement accounts through the past nine-plus years.

This may be because technology is becoming as pervasive as, well, anything, in daily life at least, and the maxim to “buy what you know” is one that is still a favorite among investors. So when Amazon’s Alexa expands its ecosystem, the knock-on effect ripples: More people buy Amazon stuff, Amazon profits grow, people think Amazon will make more money, people buy the stock. Yes, we are being generalists here, but you get the idea.

But the froth? Not in absolute prices but in the multiples, where many analysts find different ways to slice and dice valuations. But you know things are getting, well, frothy when you have to stretch back centuries to find similar valuations being seen at this very moment. Goldman Sachs said earlier this week that stocks — as measured by what was termed “valuation percentiles” — have not been this expensive since 1900. As in, 117 years.

Anywhere to hide? Not really, said Goldman Sachs, which noted that percentiles are at 90 percent across all asset classes, from bonds to equities to credit, an all-time zenith.

All-time means something in this context, in an era where the geopolitical stage is fraught with tension, where economies are getting heated enough to raise interest rates, where all manner of good news and cheer has been baked in — and not just because of the holidays.

If the end of a year is time to pause and reflect, it might well be time to pause and reflect over the good fortune your portfolio has seen, and, to take a phrase that dominates investing (at least in some corners), “be fearful where others are greedy.”


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