I wonder if the late Hawaiian crooner Don Ho knew what would happen in 2021. His song “Tiny Bubbles” may have to be rewritten as “BIG BUBBLES!!”
(Bloomberg) — A sudden swoon in bond yields has put the stock market “reflation trade” at risk of an early death. For all the ink spilled over the phenomenon, its list of lifetime achievements is short.
Yes, the rally that lifted banks and energy companies made headlines, buttressed hopes among value investors and was the basis for thousands of pages of Wall Street research. But its impact on the market’s overall contour has been slight, barely a blip when viewed on more than a monthly scale.
Consider its impact on the Faang bloc’s hegemony — or lack thereof. Rather than loosen the grip of Facebook Inc., Amazon.com, Apple Inc., Microsoft Corp. and Alphabet Inc., reflation has been but a dent in their dominance of the S&P 500. As demonstrated again this week, the fate of those five firms is apt to matter more for the larger universe of index investors than all the reopening stocks combined.
“The S&P tech concentration has come down a bit since last summer, but if the Faang names are doing well, the market is doing well,” said Ross Mayfield, investment strategy analyst at Baird. “If you have the Faang stocks up more than 1% on the day it’s going be hard for S&P to negative.”
After beating the S&P 500 for a seventh time in in eight weeks, tech stocks are resurrecting their leadership, offsetting losses elsewhere. While the Faang bloc’s 22% representation in the benchmark is down a tad from last year, its influence on the S&P 500 remains greater than any comparable group of stocks since at least 1980, according to Goldman Sachs data.
Again, it must be nice to manage a stock portfolio with the Fed printing up a storm. Since 2008, The Fed has been very active in financial markets and has help the S&P 500 index hit an all-time high.
And the Shiller CAPE (Cyclically Adjusted Price Earnings) ratio is at an all-time high except for the dot.com bubble of 2000.
Now that The Federal Government sees the new Coronavirus Delta as a potential new planet killer, The Federal Reserve won’t be going anywhere soon. So monetary stimulus will keep on going! We may be getting BIG BUBBLES instead of Don Ho’s Tiny Bubbles.
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