Why are equities so expensive?

Well, it’s the Fed, isn’t it? Maybe, but Robin Wigglesworth gives a slightly more nuanced answer.

This is another forward rate prediction, which shows much the same thing, except there is definitely an uptick at the tail end. Maybe we are seeing the beginning of the end.

Morning comment

Based on bonds, things are still risk on. Equities still going up, from the momentum gained yesterday.

As Fleck said about yesterday There isn’t much to say about the action and the stock market today, as the dynamics of passive investing, structured products along with their rebalancing and QE, continue to force the market higher.

Afternoon comment

Today Exxon dropped out of the Dow Jones Index, after 92 years. Maybe oil products really aren’t that important any longer, but I fail to see how transport can transition to carbon neutral operation without imposing huge costs on travellers. Of course, this is exactly what governments are able to do, so maybe the valuation is completely correct.

JPM Equity Strategy is bullish on tech. You can read the article yourself. Essentially, tech is not expensive relative to the rest of the market on a P/E basis. I think that this means that it may not go down, relative to the rest of the market. The index considered is not the FAANGMAN, though, so the ‘momentum has run too far’ argument can’t really be used. The problem with Big Tech is that a lot of it is not really tech: Microsoft writes software, for sure, but I would bet that a few percent of it’s employees are actually involved in writing new code, probably less than many non-tech companies. I don’t really know, but it seems to me that Google & Facebook should really be classified as advertising stocks, Amazon as a retailer (with a lucrative sideline in cloud services), Microsoft a tech support company, and Netflix a media company, and Apple a phone manufacturer. AMD and Nvidia probably do qualify as tech, admittedly, but they are the little brothers of the others.

Wrap

Soft commodities up, metals down slightly, yields up, equities up, DX futures down, (93.015). That’s it!