Tracking Valuation Hazards: How risky are markets today? During the Covid-19 pandemic, tech and other internet companies have routinely seen good performance as consumers have been forced to work from home, isolate and disregard certain […more]
Big 5 companies surge in index concentration… what will be the effect on style boxes and cap-weighted portfolios?
The recent surge has notable impacts on commonly-used style index construction methodologies. Due to the increased reliance on passive allocations, investors should be aware of the significant distortions regarding style index diversification and skews in the classification assigned to individual stocks. […more]
Are the Big 5 stocks in S&P500 (FAAMG) overvalued?
Despite concentration levels unseen since the early 1970s, this group of 5 stocks currently offers reasonable valuation characteristics. The valuation characteristics of these five stocks warrants ongoing monitoring to ensure valuation does not deteriorate. […more]
Today the irony continues, as the intellectual foundations in financial economics that underpinned Bogle’s incredible success are much less robust than they appeared in the early 70’s, yet the push for passive investing is stronger and more fervent than ever. For proactive, process-oriented, intelligent advisors this will create a great opportunity to distinguish yourself from the growing herd of “commodity” advisors who preach little more than fee minimization, rather than alpha generation or negative alpha avoidance. […more]
The largest few companies in the US have dominated performance over the past 4-5 years. The recent Covid-19 pandemic has intensified this trend in recent months. In particular, the largest five companies the in US […more]
In June, the National Bureau of Economic Research declared the US fell into a recession in February, ending its record 128-month long economic expansion. This could also be the shortest recession in the US history, […more]
Over the past 25 years, Applied Finance has studied market patterns and trends using millions of Valuations. The firm’s live database goes back to 1998, with further data starting from the early 1990’s. The two […more]
It is important to remember that markets attempt to see through temporarily good or bad times to estimate future cash flows and set current valuations. The global health and economic crisis resulting from COVID19 has created one of the greatest periods of uncertainty for market participants to see through, therefore, the fastest plunge of the US stock market ever recorded took place last month. Entering the 2nd week of April, we believe the market participants have likely concluded this is indeed a “temporary” situation, and have now started shifting focus to the recovery of the US economy and other developed regions, which will likely happen in the 2nd half of 2020 and 2021 […more]
The uncertainty of the timeline for a “return to normalcy” has created liquidity concerns across practically all economic sectors. Companies of all sizes and levels of financial strength are drawing on open lines of credit to weather worst case scenario contagion estimates. Commercial landlords will likely see missed rent payments with little demand to lease shuttered storefronts, while rising unemployment may lead to a spike in residential mortgage and rental delinquencies; this has clearly impacted the recent performance of financial stocks, REITs and mortgage insurers.
To continue to help our clients navigate the economic impacts of the pandemic, we have updated market performance data from the previous write-up to include last week’s historic sell-off […more]
Only in 2008 have valuations been as attractive as now. Today, the market is essentially pricing in 0% sales growth over the next five years, not as harsh as the -15% priced in during the 2008 lows, but very harsh compared to the expected 20% to 30% growth these firms have typically delivered over a five year period. Unlike 2008 there will not be liquidity issues driving economic decisions and panicking investors. This is a confidence crisis similar to 9/11. As medical policy catches and surpasses the virus, confidence will return and economic activity will march forward. Already, in China, restaurants have reopened to crowds, and society is returning to business as usual.
The stock market today is trading at valuation levels last seen in 2008, before an unprecedented wealth creation bull market swept away the fear of the Great Recession. Then as now, it’s always about the expectations built into market prices.