Networks and the media have become something totally surreal. At least as far as the financial markets are concerned. Not only because of the things that are said, but because the forcefulness with which they are said.
Among the most recent is that, As the stock market is chaining highs, the famous bubble is about to burst.
This statement clashes with the very definition of what It is an upward trend. Technically, an upward trend is defined as the evolution of an index or price in which the maximums are increasingly higher.
Bull markets can last anywhere from two to even 12 years.
And taking into account that bull markets can last anywhere from two to even 12 yearsWhen the market is bullish, it is normal for highs to occur frequently and for a long time.
Furthermore, another characteristic of a bull market is that Corrections are usually relatively brief.
On the contrary, since what sells on social networks and the media is fear, no one says that there is anything strange about chaining stock market lows (which is also nothing strange if the market is bearish, because that is precisely the definition of a bearish trend). What is not normal, they say, is that maximums are chained.
The curious thing is that, for those who consider it strange that the stock market has consecutive highs, It is not when bitcoin or gold do it. And that, in some cases, they are somewhat surreal climbs (due to their verticality).
When the market is bullish, it is normal for highs to occur frequently and for a long time.
The explanation is in the story. When a generally accepted narrative is established in the market, it seems normal to everyone. As in the case of gold.
Actually, nor is there currently greater geopolitical tension in the world –peace is being signed in the Middle East, Iran no longer has the capacity to make an atomic bomb and the conflict in Ukraine is quite encapsulated–, and there is no spectacular inflation either –it was much higher in 2022 and gold did not rise like it is now–, but a story of fear that it could happen has been established in society something.
And you have to accumulate what they call real assets. Which can also be debatable in the case of gold and, above all, in the case of cryptocurrencies.
something similar happens to what has always been happening in Spain with the real estate market. Once the story has been established that the brick never It goes down, no one is surprised that it goes up every day. Until one day it goes down and goes down for months. But, as can be seen, in the markets the story works just as well as in politics.
It is false that valuations of the technology sector are as high as during the Internet bubble
The other statement that is made forcefully and with the same ignorance of history is that the technology sector is in valuations equal higher than during the Internet bubble.
This is directly falsebecause, although the technology sector undoubtedly has high valuations, at that time the average PER of the 10 largest companies in the sector was 41, while now it is 31. And that is not a small difference.
But the most important thing is that In March 2000 there were two companies with a PER greater than 100 and one with a PER of 90, while currently only one company has a PER of more than 100 (Tesla, 150) and only one has 40 (Netflix).
The rest have a PER less than 30. The super bubble, which is supposed to be Nvidia, has a PER of 30. The PER is the ratio that relates the price (P) of a stock to its earnings (E). earnings).
The super bubble that is supposed to be Nvidia, has a PER of 30
The definition of the PER is another thing that those who compare that situation with the current one ignore. At that time, technology companies had these valuations because, although they had great growth expectations thanks to the arrival of the Internet, They didn’t make that much money. Those of now, in addition to having good expectations for the arrival of AI, earn a lot of money.
Obviously, in order to reach this conclusion and understand these evaluations, it is necessary to understand that Ratings are relative. If a company rises a lot in the stock market (P), but its profits also rise (E), the valuation remains stable.
And if you win a lot (E), The PER can even go down even if the value goes up. Because it is a quotient and because you cannot say that a value is very expensive simply because it has risen a lot: it must be related to what its income and profits have done.
This does not mean that the market is cheap. What we are saying is that, when it is stated that the valuation of the technology sector is at the same level as during the Internet bubble, it is simply false.
You cannot say that a value is very expensive simply because it has risen a lot
Another statement of this style, in this case about el S&P 500is that the dividend is very low compared to history.
But it is unknown that shareholder remuneration has been changing form, to the point that right now much of it is done through share buyback. If we add dividends and share buybacks, the remuneration is not very different from the historical average.
Networks and media can be very good sources of information if the right accounts or media are chosen. Otherwise, they are a source of confusion and manipulation, which causes many people to miss bullish periods in the stock market.
***Víctor Alvargonzález is a founding partner of the independent financial advisory company Nextep Finance.