The "Nifty 50" in the United States in the 1970s is considered a kind of model for the past. Analysts believe that the current market environment in which the "Seven Sisters" operate is similar to the "NIFTY 50"** bubble period, inflation is accelerating, technology stocks are highly valued, and the risk of market concentration is high. "Belief in Artificial Intelligence" is shining again.
Nvidia, which performed well in the fourth quarter, single-handedly reversed the global market, and the stock indexes of Europe, the United States and Japan hit a record high. Technology stocks soared across the board, with the Nasdaq hitting a record high of nearly 3% overnight** and Nvidia shares rising 164%, the market value soared by $277 billion overnight, and Microsoft, Apple, Google's parent company Alphabet, Amazon, Facebook's parent company Meta, and Tesla all increased their prices.
But with inflation scares back on the horizon, how far can the Seven Sisters go on their bull run? Wall Street analysts compared the "Seven Sisters" to the "Nifty 50" of the top US stocks 50 years ago, which refers to the 50 best performing blue chips in the market at the time, and the hyperinflation in the US in the 1970s led to these **large**, triggering the worst bear market in the United States since the worst bear market in the United States. Cole Smead, CEO and portfolio manager at SMEAD Capital Management, said that the current market environment for the Seven Sisters is similar to the "Nifty 50" bubble in the 1970s, and he expects the inflationary environment in the US to continue, which means that the US may repeat the bad history of 50 years ago.
While inflation is back in play, tech stocks are more vulnerable than they were 50 years ago. In an interview with Business Insider, SMEAD said that since 2020, the United States** has a tendency to significantly increase fiscal spending, which is expected to bring inflation to 5% per year. U.S. inflation has remained high above 3% since its peak in 2022, and the labor market continues to be strong, making the Fed's path to fighting inflation even more distant.
The US CPI and PPI data for January were exceptionally hot, signaling a re-acceleration of inflation soon. Rising inflation will push Treasury rates higher, and interest rates** mean bad news for highly valued tech stocks. In the 1970s, the Federal Reserve's loose monetary policy led to the worst inflation in U.S. history, followed by rapid interest rates, which led to a sharp drop in the price of these popular ones, leading to a bear market since the worst bear market in the United States.
Now, the problem could be even more serious. In his latest article, Bloomberg strategist Simon White points out that tech companies now have longer durations than they did 50 years ago, making them more vulnerable to inflation**. Moreover, cash flow is more spread over the future, making the total value of ** more susceptible to erosion by higher real interest rates. The risk of market concentration is comparable to that of 50 years ago, once the share price of the "Seven Sisters" collapsed.
While the Seven Sisters are recognized as having good fundamentals, they are overvalued, such as Amazon's 2023 price-to-earnings ratio of 59., SMEAD said36, Alphabet has a P/E ratio of 248. Nvidia's price-to-earnings ratio is 2754. Microsoft's price-to-earnings ratio is 41, which is much higher than the current 20 times of the S&P 500. The "Nifty 50"** of the 1970s also had a high valuation. According to an analysis by economist Jeremy Siegel, the average price-to-earnings ratio of these ** in 1972 was 419, while the average S&P 500 has an average price-to-earnings ratio of just 189。
SMEAD points out that the market leader** rarely retains the same lead 10 years from now. It is worth noting that the top five companies in the S&P 500 by market capitalization now account for more than a quarter of the total market capitalization of the index, compared to only about one-eighth a decade ago, and the concentration of US stocks is at a 50-year high. That said, the high risk of market concentration as high as it is now could only be seen during the "Nifty 50" bubble of the 1970s. Voices of concern are endless. In addition to the above two analysts, other Wall Street star analysts, such as former Merrill Lynch North America Chief Economist D**ID Rosenberg and JPMorgan Chase Chief Market Strategist Marco Kolanovic, also began to compare the current market with the "Nifty 50" of the 70s of the 20th century and came to similar conclusions.
Rosenberg released a report on Wednesday saying that the current "Seven Sisters" are seen as fundamentally sound like the "Nifty 50" back then, but that overvaluations can eventually form a bubble. Kolanovic also noted in a report on Wednesday that the economy, which is currently considered the "** era", could eventually turn into "stagflation" in the 70s of the 20th century. He cited geopolitical tensions, unsustainable fiscal deficits in the West, and a new wave of inflation as negative factors. Kolanovic said that if there is a negative feedback loop of "stagflation" like the 1970s, investors will shift from fixed income assets such as bonds. During the period 1967-1980, ** performed mediocre, while bond yields averaged above 7%, and bonds clearly beat **.
Therefore, the risk of market concentration is too high, the stock price of the "Seven Sisters" is too high, and inflation is playing out again, these are all issues that investors need to pay attention to.
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