Talking Points – April 2021

April 21, 2021 – A Different Look At Tech Sector Now Versus 1999

A great deal has been said in recent months comparing aspects of this market, especially the run in the technology sector, with that of the late 1990’s. There are some important similarities and differences. One key difference is our chart today.

In 1999 the tech sector made up 29% of the S&P 500 market cap, yet generated only 13% of the index’s earnings. Today the sector has a nearly equal amount of earnings and market cap.

Source: Strategas

Certainly the numbers will be somewhat skewed by the huge tech companies that generate so much earnings. Plenty of smaller tech companies still have no earnings. Regardless, we think such a notable shift over the past couple of decades is important to keep in mind when someone compares the current era to the tech bubble of the late 1990’s.

April 14, 2021 – The History of Stock Markets This Strong

Stocks have certainly had a tremendous run over the past 12 months and even so far this year. In fact, a number of sentiment data points show many investors getting alarmingly too positive. However, we also hear comments from investors that the market has gone up too much and it is too overbought to invest now. We have talked many times in the past about how market strength is typically a positive and not something to fear. Our chart today provides additional evidence.

Currently greater than 90% of stocks trade above their 50-day moving average. Since 1990 when this has occurred 12-months later stocks have been higher in 14 of 15 instances with a notable average gain of 16%. The last time this signal was triggered was last May as stocks were accelerating off the bear market lows.

Any type of market can have occasional pauses and even corrections. However, historically strong markets like we have now don’t tend to signal the end of bull markets.

Source: Greg Towner, CFA, CMT