The Six-Year Bull Run Made Opportunities Hard To Find
Why Mature Tech Stocks Have Earned Respect (Part 1 of 5)
In today’s elevated stock market, solid earnings and an improving business cycle make big U.S tech companies look particularly attractive, as Heidi Richardson explains.
In meetings with clients, I’m often asked whether there’s anything cheap left in the U.S. stock market. It’s true that after a six-year bull run, U.S. stocks will have difficulty extending their winning streak. While we don’t believe we’re in bubble territory, valuations for many sectors are high—with P/E ratios driven more by price expansion (the “P”) than by the more meaningful “E” of earnings.
Give me an “E”…
Market Realist – Equities have been supported by a six-year bull run
The US stock market (SPY) had a phenomenal six-year bull run. The S&P 500 (IVV) almost tripled since March 2009. It achieved another record high of 2,115.5 on February 24, 2015. On that day, Dow Jones (DIA) also achieved its second record close of 2015. It climbed to 18,209.2. Now, NASDAQ (QQQ) is at its 14-year high of 4,968. This is also its third highest closing. The index is only 2% away from its lifetime high of 5,048.6 achieved in March 2000.
The six-year bull run caused stretched valuations
Valuation for the S&P 500 is indeed at a ten-year high, as indicated by Robert Shiller’s cyclically adjusted price-to-earnings ratio, or CAPE. The CAPE ratio is defined as the price of a share divided by the ten-year moving average of its earnings. It’s used to assess valuations in markets. The CAPE ratio can be seen in the previous graph.
With concerns about stretched valuations plaguing investors, the question is where to find opportunities in today’s expensive equity markets. The technology sector (XLK) could be the answer. Mature tech companies had a good earnings season. Going forward, they will likely be a good investment opportunity.
This series will explore why mature tech companies could be an attractive investment opportunity. The series will also discuss the tailwinds supporting the sector.
The next part of this series will discuss how mature tech companies’ earnings reports earned respect by exceeding expectations.
Browse this series on Market Realist:
