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📑 Research Notes for 2020-08-14
This week, we look at the overvalued stock market, the undervalued U.S. dollar, Apple as a $2 trillion company, and changes in emerging market equity indices.
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U.S. Stock Market Hits Record 77% Overvalued.
According to the popular market cap to GDP ratio, the U.S. stock market, collectively, is about 77.0% overvalued. Despite the worst economic backdrop since the Great Depression, stocks have held up reasonably well since the March 23 bottom. While it’s true that the stock market has disconnected from the underlying economy, it has also done so in the past. With such an extreme level of overvaluation, it does beg the question, “Are we witnessing the formation of another bubble?”
Dollar Is Nearing `Undervalued Territory,' BofAML Says.
A prolonged dollar selloff depends to a large extent on whether the rally in risk assets continues, says Thanos Vamvakidis, head of global G-10 FX strategy at Bank of America Merrill Lynch. "Effectively it's the same trade," he said in an interview on "Bloomberg Markets: European Open."
Apple is now a $2 trillion company.
Apple has become the first US company to hit a market cap of $2 trillion. It’s an arbitrary milestone but a significant one all the same, testimony to the pandemic-defying performance of the iPhone maker. It’s also been just two years since Apple hit a $1 trillion market cap, meaning the company has essentially doubled in value in just over 24 months.
Are Emerging Markets Turning Into the S&P 500?
(A Wealth of Common Sense)
Here are some notable changes in the emerging market index since the start of 2007:
Energy has gone from more than 15% to less than 6%
Materials were closer to 16% and now sit at 7%
Financials have gone from more than 20% to 18% (and are down from a high of 27% in 2015)
Consumer discretionary stocks have gone from roughly 3% to 18%
Technology is now the biggest sector, having risen from 13% in 2007 to more than 18% now
Curated by Joseph Lu, CFA®
Joseph has over a decade of experience as an investment professional, primarily in quantitative analysis and portfolio management roles. He is the founder and managing director of Conscious Capital Advisors and a CFA® Charterholder. The CFA charter is a globally respected, graduate-level investment credential by the CFA Institute, a global association of more than 90,000 investment professionals working in over 133 countries.
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