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1.9 MB
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Type:
Financial research report / market analysis
File Size:
1.9 MB
Summary
This is a page from a Bank of America Merrill Lynch financial report titled 'Global Equity Volatility Insights' dated June 6, 2017. It analyzes the potential of a 'Tech Bubble' in US markets, comparing current market data (valuations, inflows, and streaks) to historical events like the dotcom bubble and the Global Financial Crisis (GFC). The document bears the Bates stamp HOUSE_OVERSIGHT_023578, indicating it was produced as part of a congressional investigation, likely related to financial institutions' records.
Organizations (5)
| Name | Type | Context |
|---|---|---|
| Bank of America Merrill Lynch |
Logo and footer text indicating the source of the document.
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| Central Banks |
Mentioned in the context of tightening monetary policy.
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| House Oversight Committee |
Implied via Bates stamp 'HOUSE_OVERSIGHT_023578'
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| S&P |
Referenced in S&P 500 and S&P Growth/Value indices.
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| Nasdaq |
Referenced regarding the Nasdaq 100 monthly gains.
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Timeline (4 events)
Locations (1)
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|---|---|
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United States (Title: Volatility in the US)
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Key Quotes (3)
""Alexa, has the Tech Bubble started?""Source
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Quote #1
"Irrational exuberance: Inflows to Tech funds are rising at their fastest annualized rate (25% of AUM) in 15 years, a sign of renewed exuberance."Source
HOUSE_OVERSIGHT_023578.jpg
Quote #2
"Tech stocks ousted Financials from their top position in terms of market cap and now account for 23% of the S&P500"Source
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Quote #3
Full Extracted Text
Complete text extracted from the document (2,696 characters)
Volatility in the US
How to trade the rise & fall of a potential Tech Bubble
"Alexa, has the Tech Bubble started?"
Our investment strategists recently warned against the risk of an overshoot in Tech, noting that the longer it takes Central Banks to tighten, the greater the risk of Tech and Growth stocks entering a speculative frenzy. Data on relative performance, valuation, and flows are reminiscent to varying degrees of the early stages of a bubble:
How to trade the rise & fall of a potential Tech Bubble
"Alexa, has the Tech Bubble started?"
Our investment strategists recently warned against the risk of an overshoot in Tech, noting that the longer it takes Central Banks to tighten, the greater the risk of Tech and Growth stocks entering a speculative frenzy. Data on relative performance, valuation, and flows are reminiscent to varying degrees of the early stages of a bubble:
• Market cap hegemony: Following the GFC, Tech stocks ousted Financials from their top position in terms of market cap and now account for 23% of the S&P500, the highest %-age from any single sector since the dotcom bubble (Chart 7).
• Dazzling growth vs. value outperformance: S&P 500 Growth stocks (SGX) on aggregate cost ~1.4x as much as their Value counterparts (SVX), the largest premium since the dotcom bubble (Chart 8). Notably, the S&P 500 Growth index is dominated by Tech stocks, which account for 36% of its total market cap.
• Third longest streak of monthly gains: In May, the Nasdaq 100 recorded its seventh consecutive monthly gain, the longest streak since 2009. Remarkably, the index has managed to establish a longer streak only twice in its history, in 1986 (10 consecutive months) and in 1995 (8 months). The rally in these two episodes ultimately came to an abrupt halt. However, the index would have substantial further upside from current levels if it were to achieve similar gains (Chart 9).
• Lofty valuations: The valuation of Tech as measured by price to consensus forward 12M earnings expectations recently hit its highest value since Nov-07 and is exhibiting signs of acceleration (Chart 10). However, Tech remains far cheaper than its dotcom bubble highs.
• Irrational exuberance: Inflows to Tech funds are rising at their fastest annualized rate (25% of AUM) in 15 years, a sign of renewed exuberance.
Chart 7: The last instance where a single sector dominated SPX market cap as the Tech sector does now was the dotcom bubble era
Sector leadership in US equities
[Chart with X axis 1990-2016, Y axis 10%-35%]
Legend: Tech, Discretionary, Staples, Financials, Industrials, Energy, Largest sector weight in the S&P500, Current = 95th %-ile
Source: BofA Merrill Lynch Global Research. Monthly data from Jan-1990 to Jun-17.
Sector leadership in US equities
[Chart with X axis 1990-2016, Y axis 10%-35%]
Legend: Tech, Discretionary, Staples, Financials, Industrials, Energy, Largest sector weight in the S&P500, Current = 95th %-ile
Source: BofA Merrill Lynch Global Research. Monthly data from Jan-1990 to Jun-17.
Chart 8: Growth has only been relatively more expensive vs. Value during the peak of the dotcom bubble
[Chart with X axis 1995-2017]
Legend: A / B (RHS), S&P Value (SVX) (B), S&P Growth (SGX) (A)
Source: BofA Merrill Lynch Global Research. Daily data from 30-Jun-95 to 5-Jun-17
[Chart with X axis 1995-2017]
Legend: A / B (RHS), S&P Value (SVX) (B), S&P Growth (SGX) (A)
Source: BofA Merrill Lynch Global Research. Daily data from 30-Jun-95 to 5-Jun-17
4 Global Equity Volatility Insights | 06 June 2017
Bank of America Merrill Lynch
HOUSE_OVERSIGHT_023578
Bank of America Merrill Lynch
HOUSE_OVERSIGHT_023578
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