Disclaimer: The following content is an archive of Substantive Research Discovery – Trending Investment Themes, as delivered as weekly insights to our paid subscribers. Links to gated content have been removed.

Longview Economics: How Much is the US in a Bubble?

Valuation models are poor market timing tools, based on Longview’s analysis of the efficacy of the PER and ERP in forecasting 1 and 3 year returns in the stock market. Chart below shows that there is zero correlation between the two variables.

Valuations do, however, have a part to play in asset allocation. The below chart shows that relative valuation extremes (e.g. between two countries’ equity markets, two key assets and/or two key global sectors) are also interesting and, when paired with a changing global macro theme, to highlight significant emerging opportunities. Click here.

Piper Sandler: The Most NOT-2000 Bubble Chart I’ve Seen

Lots of comparisons are made between 2023/24 and 2000. But, as below chart shows, in 2000 the momentum surge was driven by higher-beta and negative earnings stocks drove the momentum trade back then.

That’s hardly the case today, say Piper Sandler. While there’s plenty of speculation today, the foundation of current momentum stocks is at least rooted in current (realized) fundamentals.

I put the below chart together to highlight a stark contrast between 2000 and today – in how the basket of LOW/NEGATIVE profitability stocks went from 3% to 12% of the U.S. equity market during the run-up in stocks in 1999-2000.

Currently, the weight of the same portfolio is near decade lows at around 3%. Click here.

MRB: U.S. Tech Stocks: Size Matters

MRB, like Longview, don’t think valuation is a use bubble indicator. They prefer another measure, theie MRB Cyclical Momentum Indicator.

This shows that the tech sector is overbought, albeit far less so than during the 1990 s’ bubble phase. Even in a bull market, an overbought phase is typically followed by an unwinding of momentum back to a neutral reading, whether brought about by a consolidation or meaningful pullback. 

Beware Earnings Extrapolation. While not strictly an indicator as such, the below chart might act as an interesting reference. MRB say that there is potential in this market to over extrapolate future earnings, leaving the market susceptible to de-rating risk is earnings fall short.

U.S. technology sector 12-month forward earnings per share have risen by a factor of nearly six since the peak in 2000, and quadrupled since the end of 2010. they simply make the point, that this is now a much bigger base from which to grow earnings from. Click here. 

Apollo Global: AI Bubble Is Bigger than the 1990s Tech Bubble

Again, valuations are a bubble measure that seems to yield different results among analysts, making one wonder how reliable they are as a bubble indicator.

In the below chart, Apollo Global shows that the distribution of P/E ratios for the S&P 500 shows that stocks today are more overvalued than they were in March 2000. In the Longview report above, they suggest this actually isn’t the case. No note.

The Market Ear: Are we in a bubble?

Market Ear always pull together a great set of charts, and this set looks at a range of charts to define bubble indicators. Click through here for all of the charts. We show the first one from BofA.

TS Lombard: We are missing one key ingredient for an equity bubble: leverage

As per BofA’s leverage indicator, TS Lombard show a similar chart, with another dimension (vs Market cap). Leverage is actually falling. Click here.

Macro Risk Advisors: Rotation is the lifeblood of the bull market

For a bull market to be sustainable, you need to see signs of rotation, say Macro Risk Advisors

The rotation matrix on the right shows that while Tech and Industrials continue to be persistent leadership, Financials, Energy, Materials, and even Utilities are gaining strength. Click here.