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Bubble Territory? 2000 vs. 2017
As we shared in last week's Market Digest, the tech-heavy Nasdaq Composite has hit 6,000; more than 17 years after first reaching 5,000 in March 2000. We all know what happened next: the dot-com crash. Although this new milestone has sparked "bubble" discussions in the media, and we believe US equities
are richly priced, we aren't running for the exits. In fact, a comparison of valuation and sentiment, then versus now, shows the Nasdaq stands on a much stronger foundation today than it did 17 years ago.
Valuation levels differ significantly. In 2000 versus 2017, Nasdaq's trailing P/E was 107 versus 23; its forward P/E was 75 versus 22; and its price to book was 7.1 versus 3.9.
Perhaps the most striking difference however, lies in sentiment
--- which can be measured through business and consumer surveys, fund flows, margin balances, IPO's, even CNBC ratings. Regardless of the metric used, almost without exception, the difference in sentiment between 2000 and today is dramatic. Back then it seemed everyone had a hot stock tip and a euphoric view of the market. Today, commentary is full of bearish opinions of the capital markets, which, from a contrarian perspective, is a good thing.
Equity valuations are measures we closely watch, especially as new market highs are recorded. As we've discussed before, it's not a matter of if, but when, will market corrections occur. However, the best strategy to withstand a downturn isn't trying to guess when it will happen (multiple studies show that "time in" the market is much more beneficial to your bottom line than "timing" the market). Instead, it's building a portfolio with a properly diversified mix of investments so as one area declines, another moves in the opposite direction and thereby reduces your overall risk of loss.
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A strong rally early in the week lifted all the equity indices higher with the Nasdaq crossing the 6,000 threshold for the first time ever. The French election results instigated the rally as investors believed EU disintegration risk has been lowered significantly. Positive earnings reports and an uptick in mergers and acquisition activity also contributed to last week's rally.
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> First Quarter GDP: The US Department of Commerce released its initial estimate for GDP growth in the first quarter, and it came in at a disappointing 0.7%. This was the weakest pace since the first quarter of 2014 and is attributed to the fact that consumer spending barely increased (0.3%) and businesses invested less on inventories.
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Source: US Department of Commerce
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> FOMC Meeting: This week the Federal Open Market Committee (FOMC), the policy arm of the Federal Reserve, holds its third of eight regular meetings scheduled for 2017. After raising rates in March for the second time in a little over three months, expectations for a rate hike in May are near zero. This meeting may provide little for markets to respond to, but the most effective statement the Fed can make may be staying the course after a month of somewhat soft economic data.
The Fed Funds futures market has gone from pricing in approximately 1.7 additional rate hikes in 2017 (not including the March hike) down to approximately 1.4 as of Monday, April 24.
> ISM Manufacturing:
The manufacturing composite index from the Institute For Supply Management is a diffusion index based on a monthly survey of purchasing managers at roughly 300 manufacturing firms nationwide. After 7 straight months of beating expectations, the ISM manufacturing index finally fell short at 54.8 in April. While Monday's report did not meet expectations, it's still a positive number; any reading of 50 or above signifies growth in the manufacturing sector.
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It's been a year since Prince died in his Paisley Park, Minnesota home. In that time, the team responsible for maintaining the mansion has cataloged 7,000 of the late musician's belongings
--- and 2,000 of those are shoes!
"Every outfit [tagged so far] had a matching pair of shoes," Paisley Park's archival director Angie Marchese, told the New York Times. "Most of them are ankle boots and have three-inch heels on them... Even his flip-flops were wedges. Even his tennis shoes are wedges."
The archival team estimates that the items that have been cataloged so far comprise only 5% of the building's holdings, so it's possible even more shoes will be found.
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we provide institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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