Strategists say why the ‘dot-com bubble on steroids’ may persist for a while

If the strategists at TS Lombard said that the financial bubble was indeed underway, it could continue for a long time.

Via AFP Getty Image

The stock is being driven higher at the start of the week by familiar hopes of a new US stimulus deal.

House Speaker Nancy Pelosi has set a 48-hour deadline for the White House to strike a deal with Democrats over a stimulus package before the November election.

Strong China growth data, which showed a 4.9% increase in GDP in the third quarter, affected investors on Monday compared to a year earlier.

On the 33rd anniversary of the “Black Monday” market crash, the Dow Jones Industrial Average DJIA,
+ 0.39%
A 194-point gain was set in the open.

In our Phone of the day, TS Lombard strategists, said the technology’s superior performance – and hence growth – was determined to continue the shares “for a while”.

Chief US economist Steven Blitz and strategy head Andrea Scipione said they were “not alone in being nervous” about tech stock valuations. “Growth has seen unprecedented growth for over 13 years and recent acceleration appears completely unstable,” he said, noting that growth was more extreme than outperformance during the recent swelling dot-com bubble – As seen in the chart below (left). He called it a ‘dot com bubble on steroids’ in the note.

On closer inspection, however, he said the rationale for rolling in value was “less reassuring”, as the first two years of strong value returns after 2000 were during a bear market. “If the same happens this time, moving in value would be a defensive strategy.”

But Blitz and Cicione said that if a bubble was actually inflating in technology, there was no guarantee that the outperformance of growth would stop. “Through its aggressive policy options, the Fed has made a rebound in equity prices since March, giving investors the perception of a lack of risk. So stop betting on the winning horse now, especially if there is no negative aspect, ”he said.

The chart below (right) shows that while the valuation gap between growth and value is above average, it is not as extreme in 2000. But the run of growth may be more advanced which suggests a valuation gap, especially as tech companies are now both large and very profitable in the late 1990s – making it harder to justify multiples seen at the height of the dot-com craze .

TS Lombard US Watch

“Growth-driven investors would be better off doing this in small-cap investors, where a sustained period of value outperformance is more likely.

“However, they should keep in mind that if a financial bubble is indeed going on, it may continue to do so for many times longer than expected – under such a scenario, growth will probably continue to improve until bubble pop, ” They said.


After gaining 112 points higher on Friday, the Dow Jones Industrial Average DJIA,
+ 0.39%
Expectations of the US stimulus package and China’s growth data were expected to open more quickly on Monday. Dow Futures YM00,
+ 0.64%
Up 0.7% in early trading, taking a 194-point gain for the Dow in the open, while the S&P 500 futures ES00,
+ 0.76%
And Nasdaq futures NQ00,
+ 0.94%
Were also above.

European Stock SXXP,
Ascending at the beginning of the week, positive sentiment spread across the continent, but the UK’s internationally exposed FTSE UK UK,
Pound failed to join as GBPUSD,
+ 0.67%
The ‘no-deal’ stayed 0.6% to $ 1.2995, despite fears of Brexit.

The buzz

Tesla TSLA,
And Netflix NFLX,
– two of the hottest companies of 2020 – will look to maintain their momentum in a big week of earnings for investors.

Pre-order for Apple’s AAPL,
The latest iPhone 12 model is reportedly sold to Chinese e-commerce retailer JD,
+ 1.58%
In just three days.

Business was disrupted by a mess at Euronext on Monday morning. This affected trade in Paris, as well as Belgium, Portugal, Ireland and the Netherlands.

French food company Danone BN,
+ 0.86%
Restored guidance for the full year and restructured its structure as it reported falling sales in the third quarter. The stock rose 1.4% in early trading.

British cabinet minister Michael Gov said on Sunday that “Dor ajar” talks with the European Union after Brexit.

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