With the launch of Covid-19, stock markets experienced a very severe fall, but recovered just as fast and continue their way up as if nothing had happened. And if we look only at the stock markets we might think that the economy is doing better than ever. Since last year's "bottom", the market has risen 80% (S&P500), Nasdaq has risen even more (100%). Despite everything that is happening, last year was one of the best years in the financial markets.
The first thing that catches the eye is the rise of FANG. Graphically, it looks impressive.
And again, I can’t stop to admire the graph of Nasdaq to S&P500 ratio. Doesn’t this look as a technology bubble again?
And how can you figure out at which point the bubble will burst? There’s a one big difference between initial Tech bubble and current situation, though. During the first bubble technology companies had very weak balance sheets as opposed to FAANG companies that looks very solid. However, for some time now, even before COVID-19 era, the new trend emerged, exposing large number of so-called “Zombie Companies”. Companies that have one very important common feature – they work at a loss.
I downloaded the list of Russell 3000 companies and filtered out companies with negative "net income" from it. As simple as that. And here’s rather astonishing result: 33%! companies are operating at a loss.
Of course, one can argue that many of these companies are experiencing Covid initiated crisis, some are at the stage of development, investing in a R&D, new products etc. and most likely will be profitable at some point. But what if I tell you that right before the Dot Com Bubble era, this figure was only 29%, and in the rather recent GFC (Great Financial Crisis) case it was even lower: 25%.
I know, I know, it is a different situation. Yet, the current stock bubble did not appear all of a sudden, simultaneously with Covid, it was formed before that. Already in 2018, the “Wilshire to GDP ratio” repeated its historical highs and has now reached unprecedented heights.
and keeping all that in mind - you can be very aggressive and sell below 12300 with stop above all time high (14000).
The first thing that catches the eye is the rise of FANG. Graphically, it looks impressive.
And again, I can’t stop to admire the graph of Nasdaq to S&P500 ratio. Doesn’t this look as a technology bubble again?
And how can you figure out at which point the bubble will burst? There’s a one big difference between initial Tech bubble and current situation, though. During the first bubble technology companies had very weak balance sheets as opposed to FAANG companies that looks very solid. However, for some time now, even before COVID-19 era, the new trend emerged, exposing large number of so-called “Zombie Companies”. Companies that have one very important common feature – they work at a loss.
I downloaded the list of Russell 3000 companies and filtered out companies with negative "net income" from it. As simple as that. And here’s rather astonishing result: 33%! companies are operating at a loss.
Of course, one can argue that many of these companies are experiencing Covid initiated crisis, some are at the stage of development, investing in a R&D, new products etc. and most likely will be profitable at some point. But what if I tell you that right before the Dot Com Bubble era, this figure was only 29%, and in the rather recent GFC (Great Financial Crisis) case it was even lower: 25%.
I know, I know, it is a different situation. Yet, the current stock bubble did not appear all of a sudden, simultaneously with Covid, it was formed before that. Already in 2018, the “Wilshire to GDP ratio” repeated its historical highs and has now reached unprecedented heights.
and keeping all that in mind - you can be very aggressive and sell below 12300 with stop above all time high (14000).