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13 Nov 2020

As Nasdaq Soars, Are We In a Bull Market?

Irrational exuberance?!

Out of touch with reality?! Perhaps a dreamy La La Land of stocks and Index funds fueled by tweets and free money printed in Washington DC?!

Investors are buying stock like nothing else matters. Trading and re-trading and rocketing up valuations?!

There are all questions and my wonderment at the amazing Nasdaq that has almost doubled since March of this year and has added about 30% since the pre-pandemic high set on February 10, 2020 and 40% Year-to-date!

And along the way the Nasdaq has powered the overall market to higher highs! Perhaps the Nasdaq is telling us that we can all just live on the Clouds forever.

Here is a historical comparison of the Equity valuation to the US GDP – loosely called as the Buffett indicator. We have traveled onwards and upwards crossing the previous highs set in 1999 (before the Dotcom bust) and 2008 (before the Great Recession).

Either it is money for nothing or clouds for free – to borrow from the Dire Straits…

There can only be two possibilities:

  1.  The market is in a bubble and it is set to crash any time given we are in a pandemic and the real economy is not looking that great.
  2. There are hidden green shoots every where for a quantum leap in the economy that my produce new wealth for the United States as well as the rest of the world.

If the second is real, the market may be well justified despite the many self-doubts.  Typically the market expects the strength of the real economy about six to twelve months ahead of the growth.

Perhaps all this liquidity and the tax cuts has produced fantastic incentives for businesses to thrive and new businesses to emerge for the next decade.  May be we are the cusp of a long economic up cycle that is just starting now.

For one thing, we need to revamp the global infrastrucutre after this pandemic leaves.  Supply chains need to be rebuilt and rehabilitated.   We need to invest in news to handle pandemics, healthcare and the struggling infrastructure for both manufacturing and services.

May be we are on to something big………….. Stay tuned!

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