That's 3.5 times more than the S&P 500 was valued at just 10 years ago. That would imply economic growth of 35% a year for the past 10 years so kudos to all the believers although, to be fair, we thought the market was toppy at 2,850 last year and we're really only up 150 (5%) since then so let's not get too excited that we're finally hitting 3,000 after trying for 18 months.
All the heavy lifting, from 666 to 2,500 (275%) was done under Obama's watch and the economy was doing so well that the Fed was tightening and reducting their balance sheet. 30 months into Trump's turn in office and the Fed is hitting the panic button again, reversing course and actually going back to cutting rates to help stabilize an economy ravaged by rampaging deficits, political instability and pointless trade wars.
And that's considered the "GOOD" news that traders are embracing from Powell's comments as he stretches to justify bowing to pressure from the President to lower rates despite all the prosperity the President claims we are enjoying. Of course it makes no sense – but is that a reason not to pay all-time high prices for stocks? $1Tn for Apple (AAPL), $1Tn for Microsoft (MSFT), $1Tn for Amazon (AMZN)… sure, why not? After all, what's a Trillion anyway – we run up more than that in debt every 12 months now.
We're on a path towards making money meaningless so why not spend it on over-priced equities? As you can see from the chart above, it's been a pretty much straight up 10-year run with only 6 noticeable corrections so once every 18 months we average a pullback on our 350% run. No wonder so many people are trained to buy any dip – it's been a winning formula since Generation Y got out of college – they don't know any better.
Ignorance can truly be bliss in a bull market as traders are content to ride stocks like Amazon to the moon while more cautious investors might have taken some off the table half a Trillion Dollars ago. Just yesterday, AMZN gained 1.5% or $15Bn in market cap despite the fact that only $10Bn worth of shares (4.9M) were traded and half of those were people selling, not buying. This whole rally has been market by a very scary lack of volume which usually we would say indicates a lack of conviction but someone sure is convicted with the entire S&P up 350% in 10 years!
As you can see from the chart, AMZN stock is up 40x since the 2009 lows and their revenues were $27Bn back in 2009 and now it's $232Bn so that's up 7.5x and they didn't have profits then and now they are making $10Bn so why not pay $1,000,000,000,000 for the company – it's only 100x the current earnings and 4x revenues… As Keynes said "The market can remain irrational longer than you or I can remain solvent" so we don't bet against AMZN – we just sit back and watch the show.
AMZN is, in fact, one of just 77 stocks that have driven the markets higher this year while the other 11,000 Global stocks are struggling to stay even, according to a study by Société Générale. “This is a problem,” SocGen's Lapthorne said. “Our increasing focus on a few large-company indices populated by just a fraction of the world’s stocks is giving investors a false impression. The average investor is being presented with a peak in the S&P 500, which reached a record high earlier this month, yet numerous companies are struggling."
Figures from FactSet, a financial research company, showed that, on average, S&P 500 companies’ Gross Profit (which discounts overheads) fell by 2.6% in the second quarter of the year relative to the same period in 2018. Of the 114 firms that reported results in the period, three quarters issued pessimistic turnover expectations. The first three months also witnessed a decline in gross profit relative to the previous year, marking the first time since 2016 that the American market saw two consecutive quarters of falling profits. The S&P 500 index rose by 18% over the same period.
The 77 large-cap companies that are moving the markets comprise 26% of the entire Global Market Cap – yet another case of the rich getting much richer while 11,000 companies with market caps below $1Bn (the poor) got an average of 10% poorer this year in terms of valuation. This is what we expect to happen as automation moves us towards a society where a select few companies will own all the robots and they will drive out all competition and make all the money. This is why the Oligarchs are seizing control of our Governments – only legislation can stop them, so they want to eliminate that threat.
Meanwhile, we don't seem to be able to beat them, so we might as well join them and go along for the ride. While AMZN may be over-priced, MSFT is not too terrible at 30x earnings and Apple (AAPL) is a downright bargain at 12x earnings as are IBM (10x), CSCO (20x) and, of course, Intel (INTC) at 11x because those robots are going to need brains in order to kill humans and they are going to need to get their instructions over the WiFi as to which humans to kill with software from MSFT and hardware from IBM and design by Apple (something that looks good covered in human blood) so we're all on the right side of the Robot Revolution when it comes.