Early Friday futures trading was choppy after a much stronger than expected U.S. jobs report knocked hopes for imminent interest rate cuts by the Federal Reserve. Counteracting that was propulsion provided by well-received earnings reports from Meta Platforms
META,
+1.19%
and Amazon.com
AMZN,
+2.63%
— though a less favorable response to Apple’s
AAPL,
+1.33%
numbers may contain the ebullience.
Yes, yet again, big tech is underpinning the market. A danger for investors is thinking this will always be so; that U.S. tech’s dominance means Wall Street will continually benefit from what’s been termed ‘American exceptionalism’. But nothing lasts for ever notes Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors: “Positioning and valuation suggest that investors expect the U.S. equity dominance of the past 15 years will last indefinitely, but history seems to suggest otherwise.” He explains that eventually, high valuations and unattainable growth expectations lead to disappointments and significant devaluations. “The subsequent period of deteriorating fundamentals and weak returns causes the pendulum to swing to opposite extremes,” Suzuki says. Consequently, those periods of significant outperformance are often to be followed by periods of notable underperformance, As the chart below shows, this can result in sectors enjoying even the most formidable of secular themes reversing much of their previously earned extraordinary gains.
Source: Richard Bernstein Advisors
To illustrate how big themes can rise and fall, Suzuki has identified what he considers the best trades of the last 50 years. Each would have generated excess returns averaging 7-19% per year spanning periods of 8-22 years, he notes. First: International stocks over U.S. stocks (1967 – 1988) — the dark blue line in the chart above. The d …
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META,
+1.19%
and Amazon.com
AMZN,
+2.63%
— though a less favorable response to Apple’s
AAPL,
+1.33%
numbers may contain the ebullience.
Yes, yet again, big tech is underpinning the market. A danger for investors is thinking this will always be so; that U.S. tech’s dominance means Wall Street will continually benefit from what’s been termed ‘American exceptionalism’. But nothing lasts for ever notes Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors: “Positioning and valuation suggest that investors expect the U.S. equity dominance of the past 15 years will last indefinitely, but history seems to suggest otherwise.” He explains that eventually, high valuations and unattainable growth expectations lead to disappointments and significant devaluations. “The subsequent period of deteriorating fundamentals and weak returns causes the pendulum to swing to opposite extremes,” Suzuki says. Consequently, those periods of significant outperformance are often to be followed by periods of notable underperformance, As the chart below shows, this can result in sectors enjoying even the most formidable of secular themes reversing much of their previously earned extraordinary gains.
Source: Richard Bernstein Advisors
To illustrate how big themes can rise and fall, Suzuki has identified what he considers the best trades of the last 50 years. Each would have generated excess returns averaging 7-19% per year spanning periods of 8-22 years, he notes. First: International stocks over U.S. stocks (1967 – 1988) — the dark blue line in the chart above. The d …nnDiscussion:nn” ai_name=”RocketNews AI: ” start_sentence=”Can I tell you more about this article?” text_input_placeholder=”Type ‘Yes'”]