tl;dr
BofA Securities analysis the most prominent market bubbles in modern history and compared them to what they categorize as today’s bubble -- the Magnificent Seven stocks. In their Flow Show report, published on Thursday, analysts said that no bubbles were alike, but there were similarities to ga...
BofA Securities analysis the most prominent market bubbles in modern history and compared them to what they categorize as today’s bubble -- the Magnificent Seven stocks.
In their Flow Show report, published on Thursday, analysts said that no bubbles were alike, but there were similarities to gauge the Mag Seven group -- Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Nvidia (NVDA), Meta Platforms (META), Tesla (TSLA), and Alphabet (GOOGL) -- Those are comparisons in catalysts, price, valuation, and the price of money.
These are the comparisons between today’s Magnificent Seven and the previous bubbles:
Catalysts:
Bubbles have been driven by technological advances, new geographical sources of growth and central bank easing. The artificial intelligence bubble started by the Fed’s response to Silicon Valley Bank and ChatGPT, similar to what the Plaza Accord did to Japan, the Long-Term Capital Management collapse to the internet, the attack on Sept. 11, 2001, to the housing bubble of the 2000s, and the Covid pandemic with $30T of policy stimulus to cryptocurrency. “Even Mississippi and South Sea Company bubbles caused by amendment to English usury laws in 1714, forbade lending rates over 5% as UK and France needed to borrow to finance the ceaseless war… no different today,” analysts wrote.
Price:
The Magnificent Seven had a 140% gain over the past 12 month, closing in on a 180% rise in the Dow Jones (DJI) in 1920, and 150% for both Nifty Fifty in the 70s and Japan stocks (EWJ) in the 80s, “but not quite the 190% gain of internet bubble, nor the 230% surge in the FAANG stocks -- (META), (AMZN), (AAPL), (NFLX), and (GOOG) -- from the Covid lows,” analysts said. Big deviations from the moving averages is another classic bubble symbol. The Mag 7 are currently above 20% from the 200-day moving average, compared to the 30% oversold metric of nine other equity manias.
Valuation:
Trailing PE for the Mag 7 is currently at 45x. “It ain’t cheap, but true that bubble highs have seen dafter valuations,” analysts wrote. Trailing PE for the Nifty Fifty was 54x. It was 67x for peak Nikkei in 1989; 65x for the Nasdaq Composite (COMP.IND) in 2000; 205x for the Nasdaq 100 (QQQM); and 60x in 2021 for peak FAANG stocks.
Bonds:
The direction of the bond yields is a key bubble metric since the “abnormality" of the bubble infects other assets and the economy, analysts wrote. In 12 out of 14 observed bubbles, bond yields rose as the bubble reached a peak or pops, analysts observed. Tightening financial conditions are usually the catalyst for the pop. Several examples include 4% real rates popping the internet bubble, 2% rates popping the Chinese stock bubble, and 3% rates popping the subprime mortgage crisis. More recently, the surge in real rates from -100 basis points to 150 basis points in 2021-2022 popped bitcoin (BTC-USD). “Given significantly higher levels global debt today, versus history, 10-year real rates, currently 2%, will likely need to rise to 2.5-3% to end the AI, and Magnificent 7 mania,” analysts said.
More about Apple Inc
Apple Inc. is the world's largest technology company by revenue, totaling $274.5 billion in 2020. Since January 2021, it has been the world's most valuable company. As of 2021, Apple is the world's fourth-largest PC vendor by unit sales and the fourth-largest smartphone manufacturer. The company's market capitalization stands at $2.83 trillion, with a stock price of $28.55 and a 0.95% increase. The stock has a 6.44% return on equity and a 24.65 P/E ratio. The market sentiment towards Apple Inc. is bullish, with a relative strength index (RSI) of 0.262. However, there are potential risks and uncertainties associated with the stock's performance, as past market behavior is not always a reliable indicator of future performance.
More about Microsoft Corporation
Microsoft Corporation is a leading American multinational technology company with a market capitalization of $302.09 billion. The stock is currently trading at $36.76, with a 52-week range of $30.61 to $11.06. The company's price to earnings ratio is 2.86, indicating potential undervaluation. Microsoft has a strong market sentiment, with a relative strength index of 0.363, suggesting a bullish trend. The stock has shown a breakout pattern and is currently trading above its moving averages, indicating positive momentum. However, it's important to note that past performance is not always indicative of future results, and there are potential risks and uncertainties in the market that could impact Microsoft's stock performance.
More about Amazon.com Inc
Amazon.com Inc is a major player in the retail-catalog & mail-order houses industry, with a market capitalization of $1,763,780,461,000. The stock is currently trading at $204.87, with a relatively low P/E ratio of 50.69, indicating potential for growth. The stock has shown a 2.9% increase over the past year, outperforming the market average. Market sentiment towards Amazon.com Inc is bullish, with a Relative Strength Index (RSI) of 55.78, indicating strong buying interest. However, it's important to note that past performance is not always indicative of future results, and there are potential risks associated with investing in this stock, such as the company's high valuation and potential regulation in the technology industry.
More about NVIDIA Corporation
NVIDIA Corporation is a leading American multinational technology company specializing in the design of graphics processing units (GPUs) for gaming and professional markets, as well as system on a chip units (SoCs) for mobile computing and automotive applications. With a market capitalization of $179.47 billion, the stock is currently trading at $675.15 per share, with a 52-week range of $448.70 - $675.15. The company's price-to-earnings ratio stands at 96.11, indicating a relatively high valuation. The stock has shown a 7.56% increase in the last quarter and a 18.18% increase over the last year. While the Relative Strength Index (RSI) is at 0.421, signifying a neutral sentiment, the stock is currently trading above its 200-day moving average, suggesting a bullish trend. However, it's important to note that past performance is not indicative of future results, and potential risks and uncertainties should be carefully considered.
More about Meta Platforms Inc.
Meta Platforms Inc. is a technology company that develops products for connecting and sharing through various devices. The stock has a market cap of $1.21 trillion and a P/E ratio of 31.85, indicating a relatively high valuation. The stock has shown strong performance, with a 52-week range of $14.86 to $52.41. Despite recent volatility, the stock is currently trading at $503.80. The RSI indicator of 2.002 suggests the stock is oversold, potentially indicating a buying opportunity. However, the stock is currently below its 200-day moving average of $0.29, indicating a bearish trend. Overall, market sentiment towards Meta Platforms Inc. appears mixed, with potential for both upside and downside risks.
More about Tesla Inc
Tesla Inc is an American electric vehicle and clean energy company based in Palo Alto, California. In 2020, Tesla had the highest sales in the plug-in and battery electric passenger car segments, capturing 16% of the plug-in market and 23% of the battery-electric market. Through its subsidiary Tesla Energy, the company develops and is a major installer of solar photovoltaic energy generation systems in the United States. Tesla Energy is also one of the largest global suppliers of battery energy storage systems, with 3 GWh of battery storage supplied in 2020. The company's stock performance has been strong, with a market cap of $638.39 billion, a current price of $46.72, and a price-to-earnings ratio of 30.49. Tesla's market sentiment is positive, with a Relative Strength Index (RSI) of 207.75, indicating strong bullish momentum. However, it's important to note potential risks and uncertainties, and past market behavior is not always a reliable indicator of future performance.
More about Alphabet Inc Class A
Alphabet Inc. Class A is a technology company with a market capitalization of $1.78 trillion, making it one of the world's most valuable companies. The stock has a current P/E ratio of 24.62 and a dividend yield of 0.24%, indicating a stable financial performance. Despite recent market volatility, Alphabet has shown strong support at the $162.06 level, with a current price of $307.39. The Relative Strength Index (RSI) of 5.8 suggests that the stock may be oversold, while the Bollinger Bands indicate a narrow trading range. The overall market sentiment for Alphabet Inc. Class A appears bullish, supported by its strong fundamentals and technical indicators. However, potential risks and uncertainties in the broader market should be considered when making investment decisions, as past performance is not always indicative of future results.
More about Netflix Inc
Netflix Inc. is a leading American over-the-top content platform and production company, with a primary business of subscription-based streaming services offering a library of films and television series. With a market capitalization of $250.71 billion, the stock has a current price of $575.64. Over the past year, the stock has shown a high of $76.37 and a low of $12.04, indicating significant volatility. The company's revenue stands at $33.72 billion, with a P/E ratio of 48.12, suggesting potential overvaluation. The market sentiment towards Netflix is mixed, with uncertainties surrounding its ability to maintain subscriber growth and competition from other streaming platforms. The technical indicators show a bullish trend, with the stock trading above its moving averages, but there are potential risks associated with its high valuation and market competition.
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