It seems that markets have probably gone far enough in this rally for now, as yesterdays sell off in big technology stock in the American markets showed, things can turn very quickly when they go. Yesterday, Apple Inc – still the world’s only $2 Trillion company – lost $219 Billion of market capitalisation in a day. To put that into context, that is roughly the value of Intel Corporation, and is much bigger than the total market capitalisation of Exxon Mobil corporation, who, once upon a time, was the worlds biggest company. The S+P 500 Index fell 3.5% on Thursday, and market indices futures indicate a further fall today, ahead of their long weekend in the USA.
So, is something amiss? No, we think not. It is usual for market traders to square up their trading books ahead of a long weekend, because although markets will be closed in the USA on Monday, they will be open in the rest of the world, and that means traders will be exposed with their home market not open. The rally from mid-April has been strong and we were beginning to see that rally strength spreading into other areas and sectors of the markets, so a pause in the relentless rise in the share prices of Apple, Amazon, Tesla et al, is no bad thing in the short term. In fact, if we look back to the ‘tech boom’ of 20 years ago and compare valuations and ratios of todays tech giants, there is no major detachment from valuation metrics then, when compared to now, and don’t forget, now, unlike 1999, these tech giants make vast profits.
There is a saying in stock markets that ‘If the money is anywhere – it has to be somewhere’. Global liquidity is not threatened unlike 2008, and if we compare the amount of money deployed into the stock markets against total liquidity, both US and global, we do not see any major historical disconnect. In other words – this is not a tech bubble – yet!
Have a great weekend.