Even at its tech bubble peak in March 2000, the Nasdaq (QQQ) ended this month slightly smaller than the Euro Stoxx 600. While the tech-heavy Nasdaq had risen, driven by investor mania for Internet-related stocks, it was always worth less than the combined market cap of a pan-European stock index. After all, the Euro Stoxx 600, represents around 90% of the combined market capitalization of not only the Eurozone, but stocks of the continent, including the United Kingdom, Switzerland and the Scandinavian countries which had not recently officially adopted the single currency. Year before. The combined region represented by the Euro Stoxx 600 is larger in terms of population and economic output than the United States, and the Nasdaq tends to represent a sector of the American economy very largely.
Today, the Nasdaq once again overtakes markets around the world. In 2020, the Euro Stoxx 600 is down nearly 12% while the Nasdaq has climbed almost 19%. The Nasdaq added $ 2.7 trillion in market capitalization, greater than the total size of all UK stocks in the index, the country with the largest representation in the gauge. In comparison, the Euro Stoxx lost around $ 1 trillion in value, almost the value of an alphabet (GOOGL), and well behind the largest constituents in the index – Amazon (AMZN), Microsoft (MSFT) and Apple (AAPL).
Below is a long-term history comparing the total market caps of the two gauges (in US dollars) with data going back to March 2000, when the Nasdaq previously peaked. The two lines have diverged sharply since the Nasdaq first crossed the Euro Stoxx in mid-2018; this divergence accelerated in 2020.
Although the Nasdaq far exceeds the Euro Stoxx 600, this is not a new trend. In their respective currencies, the Nasdaq has beaten the Euro Stoxx 600 in the past 4 years, and 11 of 13. The Nasdaq has followed the Euro Stoxx 600 for 6 of the 7 years from 2000 to late 2006 as a tech bubble deflated.
Using Bloomberg’s forecast earnings estimates, the Euro Stoxx is expected to produce around 452 billion euros ($ 536 billion) in profit in 2020 at its forecast P / E of around 21.6x. At the Nasdaq’s forward P / E of around 38.5x, it is expected to produce $ 432 billion in profit, about 20% lower than the Euro Stoxx, despite a combined market cap of around 40% higher.
In a world lacking growth, investors are launching deals on companies that bring their own growth. America’s tech leaders have been seen as defensive in the remote work economy. Second quarter numbers for the tech pillars indicate their defensive stance in today’s environment. The question for investors must be what premium should be awarded to the sector and its leaders.
While the recent gains have been glorious, investors should remember that since the last market peak for the Nasdaq it has failed to generate positive returns for the next 14 years!
This is not the tech bubble of the 2000 era. There are real profits and cash flow behind these stocks. The question is whether investors are paying the right price for these profits and cash flow. Paying too high a price can eventually lead to lower returns in the future. As the percentage of American technology increases in global capitalization-weighted portfolios, investors should consider whether this is a portfolio weight that continues to make sense for their portfolio.
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