Great post, René! You make excellent points on market concentration, and the lagging nature of metrics like the Shiller P/E. It's hard to ignore the luxury car rush, the CEOs as pop stars and the sheer scale of the trillion-dollar IPOs looming on the horizon.
However, the critical counterweight here is that actual earnings growth and forward expectations entirely justify these valuations (in contrast to the dot.com bubble) .... provided, of course, that those expectations turn out to be correct.
Take Nvidia as the poster child for this rally. Based on current analyst consensus estimates, its forward P/E for 2030 sits at roughly 10. If those predictions materialize, that valuation isn't bubbly at all; it's actually cheap. The market is simply pricing in a massive, continued expansion of the denominator. As long as the companies actually deliver on the earnings, the math holds up.
Time will tell, if those predictions will hold. Fingers crossed.
Great post, René! You make excellent points on market concentration, and the lagging nature of metrics like the Shiller P/E. It's hard to ignore the luxury car rush, the CEOs as pop stars and the sheer scale of the trillion-dollar IPOs looming on the horizon.
However, the critical counterweight here is that actual earnings growth and forward expectations entirely justify these valuations (in contrast to the dot.com bubble) .... provided, of course, that those expectations turn out to be correct.
Take Nvidia as the poster child for this rally. Based on current analyst consensus estimates, its forward P/E for 2030 sits at roughly 10. If those predictions materialize, that valuation isn't bubbly at all; it's actually cheap. The market is simply pricing in a massive, continued expansion of the denominator. As long as the companies actually deliver on the earnings, the math holds up.
Time will tell, if those predictions will hold. Fingers crossed.
My take on the valuation issue. Solving the Metzian Dilemma.
https://substack.com/home/post/p-198878429
Well written.
The S&P has had a great run over the past two weeks but pull out the AI names and the index has gone nowhere since February.
A small number of stocks did all the heavy lifting; the other 490 sat there doing nothing.
So when someone tells you that the diversified index is at record highs, the truth is that it's mostly one trade.
That means that the froth is very concentrated.
A rotation is coming.