16 ms·

So Intel is cutting 11% of its workforce, Goldman Sachs just reported a 56% drop in profits, Morgan Stanley had a 50% drop in profits, Netflix missed subscriber

by tma-1 10y ago

So Intel is cutting 11% of its workforce, Goldman Sachs just reported a 56% drop in profits, Morgan Stanley had a 50% drop in profits, Netflix missed subscriber growth estimates etc... yet, the Dow just hit a 9-Month high, and the S&P500 is now above 2100. The whole market is overvalued, not just the tech unicorns.

bduerst 10y ago
>Bubble Four companies don't represent the market. Come on. I swear some users here will wish will wish bubbles out of the air to gripe about.
- tim333 10y ago
  I don't think anyone above said "bubble". Overvalued is a different thing markets are usually either over or undervalued and probably overvalued today. Bubbles proper are kind of rare, the last major clear one being the 2006 housing bubble. You could argue there's a bond bubble presently.
  - bduerst 10y ago
    You're right - Claiming the markets are overvalued like the unicorn bubble isn't literally saying there is a bubble, it's just implying there is. There is most likely a corporate bond bubble, as we know from representative market signals. With the S&P 500 though, four companies are not representative signals.
trollingineeer 10y ago
You understand nothing about the markets or the stock market. But like everyone else here on HackerNews you think you are knowledgeable in all things.
dntrkv 10y ago
If you pick and choose stocks, you can tell any story you want. Intel cutting its workforce is more of a reflection on the state of the PC market rather than the US economy as a whole. I'm not saying the market is overvalued or not, but this is in no way indicative of that.
- adrenalinelol 10y ago
  ^ To add to this I'd lay say the over-valuation(s) are a side-effect of our monetary policy being in never-ending "stimulus" mode. On Intel I think the "everything is going mobile" is PR for investors, the PC market doesn't have any foreseeable growth potential atm.
  - mizchief2 10y ago
    Why make things when you can borrow money for nothing and move paper around for profit.
  - cft 10y ago
    The stimuls mode is a permanent regime now. It's good in the short term, but I do not know if anybody understood mid- and long-term consequences of this new permanent mode.
    - wuliwong 10y ago
      There is nothing mysterious about the short, mid or long term effects of artificially low interest rates and quantitative easing. edit Here's a link to read about it. https://mises.org/library/unseen-consequences-zero-interest-rate-policy https://mises.org/library/unseen-consequences-zero-interest-...
    - criley2 10y ago
      "The stimulus mode is a permanent regime now" As a general FYI to those reading -- please fact check before commenting. The Federal Reserve's quantitative easing program ended on Oct 29th, 2014 (538 days ago!) It is difficult to assert that a program which ended over 500 days ago is permanent. Additionally, one may be willing to assert that "ZIRP is permanent regime now" too, to tack onto the culture that central banking has entered a new era. For anyone who did not see that news, ZIRP (zero interest rate policy) ended on Dec 15, 2015 with a rise, and is currently believed to rise again at the next meeting.
      - 10y ago
Jerry2 10y ago
>The whole market is overvalued, not just the tech unicorns. Yep. That's what Peter Thiel is saying as well: https://news.ycombinator.com/item?id=11485376 https://news.ycombinator.com/item?id=11485376
- tma-1 10y ago
  I am not surprised. I am a huge fan of Thiel, his book Zero to One was a real eye opener for me.
- SixSigma 10y ago
  Aside from if he's right or not, that is the belief one would expect him to hold, his other option is "looks like I'm a bad investor after all".
  - mfukar 10y ago
    One can't be a bad investor and learn from their mistakes, presumably?
    - SixSigma 10y ago
      Yes one can learn but when one's investment is correlated to how one talks about it, best to keep those lessons to yourself and make better investments in future. "My investments are over valued, oh the lessons I have learned" "All investments are overvalued, oh the lessons we will learn" are two very different statements.
alanwatts 10y ago
>The whole market is overvalued, not just the tech unicorns. Who is it overvalued by, and how is the "true" value determined?
- TheOtherHobbes 10y ago
  The actual information from markets is in estimated future prices, not the current bid/ask spread. The true value is determined by what happens next, for short to medium values of "next." Current fundamentals simply don't support a future of continuing growth. A correction is certain. The only questions are when, how fast, and how much.
- clord 10y ago
  Suppose the market just tracks widget factories. Every factory produces the same quality widgets, all shipping is flat-rate by distance and there are no tariffs or taxes. In this market, it's easy to determine market value of any particular widget factory: market share of world-wide production. Suppose everyone expects the demand for widgets to grow by 1% per year for the next 10 years. This growth might get priced into the market with some sort of net present value calculation. Capital will flow into building new widget factories to fund all of this new construction. Now what if actually an asteroid hits a city with lots of widget demand. 50% of demand is wiped out instantly. Well in this case, everyone was overvaluing the market for widgets! All of those net-present-value calculations were way off. The market will correct. Or maybe the asteroid takes out 50% of production. Suddenly much more investment in widget factories is required. The price shoots up to capitalize all of the construction, since demand has not changed. In either case, before the asteroid the market was not correctly valued since no one had yet priced in the asteroid.
  - deleted 10y ago
    [deleted]
  - UK-AL 10y ago
    It wasn't really over valuing the price widgets. Valuation only includes all available information. You can't expect random acts of God to be priced in. Overvalution is when psychology everyone is bullish, but the facts are not backing that up.
hkmurakami 10y ago
Healthcare as a sector is doing pretty well. Consolidation down to 3 major players will likely increase their margins further.
- cordite 10y ago
  Which aspects are you referring to?
jhulla 10y ago
To be pedantic: the market is perfectly valued at every moment. Of course market prices will change, sometimes very quickly. BTW, this is a great site for tracking S&P ratios: http://www.multpl.com/ http://www.multpl.com/
- pjlegato 10y ago
  The efficient market hypothesis (the idea that the market is by definition perfectly valued at every moment) is highly controversial, and actively rejected by many finance and economics experts of all political views.
  - jhulla 10y ago
    My point is simply a tautology: the price is the price. Now the price may change, someone may have their thumb on the scale, there may be shill bidders driving sentiment, etc. But at the moment you get a bid/ask spread, that is what you get. Practically speaking, I personally don't believe the efficient market hypothesis due to the very obvious meddling by political actors, central banks, national treasuries, etc. Behavioral finance has also consistently demonstrated that humans do not react rationally in markets.
    - maaku 10y ago
      That may have been your point, but it's not what you said. "Perfectly valued" means that the price is what it should be (for some definition of "should").
      - jhulla 10y ago
        "Perfectly valued" to me means that at that moment, the price reflects the actions of everyone. It includes the actions of all buyers/sellers who choose to participate and not participate, the regulators, as well as the meddlers. My point is a pedantic one referring to the OP using the word "overvalued". The market price is never over/under valued. It is merely the market price at that moment.
mathattack 10y ago
Goldman's stock price is approximately 25% off it's 12 month high. [0] Morgan Stanley is approximately 35% off. [1] Seems like the market is properly taking in their bad news. Some parts of the market do fine, others get hit. And yes, some might be over-valued. When interest rates are low, the future cash flows of companies are discounted back at a lower rate. So if all things are equal (which they never really are, but humor me) low rates imply higher prices for both equities and bonds, and especially startups whose cash flows are mostly in the future. [0] https://www.google.com/finance?cid=663137 https://www.google.com/finance?cid=663137 [1] https://www.google.com/finance?cid=660479 https://www.google.com/finance?cid=660479
- tma-1 10y ago
  Both GS and MS (as well as other FIs) are off there highs because of all the volatility in the markets the past 6 months and worries about losses from bad energy loans. BAC, WF, Citi are all off their 12-month highs by a significant margin despite doing relatively well in Q1. Also, this has nothing to do with discounting the cash flows, it's mostly stock buybacks that's driving all the action: http://www.bloomberg.com/news/articles/2016-04-19/early-warning-signs-of-recession-flash-faintly-in-u-s-jobs-data http://www.bloomberg.com/news/articles/2016-04-19/early-warn...
  - mathattack 10y ago
    These go hand in hand. The debt issued to buy back the stock is cheap. :-)
  - thecosas 10y ago
    I think you may have overlooked the recent DOL Proposal and it's potential impact on profit margins if it pushes forward. Good for consumers, but bad if you have to improve processes, hire people to handle them, etc. http://blog.emoneyadvisor.com/industry-news/trending/complete-coverage-of-the-dol-fiduciary-ruling/ http://blog.emoneyadvisor.com/industry-news/trending/complet...
    - bwilliams18 10y ago
deleted 10y ago
[deleted]
free2rhyme214 10y ago
Spot on!
jules 10y ago
How can the whole market be overvalued? Prices are relative, no?
- redcalx 10y ago
  Short answer: No. E.g. if you buy 'shares' in an index (via an ETF), you're effectively buying a weighted basket of the component shares in the index. If the individual shares are overpriced then so is the index as a whole. Hence the S&P500 has a price:earnings ratio, and you can decide for yourself if that ratio is looking 'toppy'.
- clord 10y ago
  In one sense yes — if the sum total of the market is '1' and everyone is just some fraction of that. Then there can only ever be relative price changes. But the sum of all prices does in fact vary. I'm sure you're familiar with Tulip Mania. Prices can be bid ever-higher in a cycle, and they can also decline in tandem as in the depression. For the entire market to have an expanding total price, new money has to be entering the market, or the net real value of the underlying financial assets has to be declining. Either way, the entire market can become overvalued or undervalued, especially compared to non-financial (or illiquid) assets denominated in the same currency — e.g., wages, energy, or land.
- thecourier 10y ago
  it works like this: Imagine you have a huge amount of money, enough to buy whole companies like Apple, Coca Cola and Walmart. you want to keep your money and even make it grow, so you're looking for good businesses to buy. I have one company for sale at USD329 billions, it grows 50%-100% a year for now and currently generates USD3.29 billions I have another company for sale at USD219 billions, it is shrinking at 1.4% a year and currently generates USD14.69 billions And finally I have another company for sale at USD200 billions, it is growing/shrinking between -8% and 60% a year and generates USD7.35B Most people prefer the second one, who makes you a good 7% return a year. the first one looks good, but will take at least 6 years to be as good as the second and the last one is so so. the companies where 1) Facebook 2) Walmart and 3) Coca cola. (we're ignoring how much assets and liabilities they have for simplicity) And as you see, even when facebook has a promising future, we don't know if it will reach a good value/margin level as walmart. so we may agree it's overvalued at is current price. Hope this shed some light, I'm not a trader or something, so this info is very simplistic P.D.: this analysis is called Fundamental Analysis, you can go deeper and honestly it has worked very well in my portafolio. I bought stock in Gerdau (GGB), a brazilian steel company, because I studied as a whole business and discover it was priced very low. that was starting in November, I bought those stocks at 1.22 and recently they reached 2.44. I basically duplicated my money in 6 months. Remember stocks aren't just tickets, they are little parts of a big business.
melling 10y ago
Can you explain why the Goldman and MS stocks didn't drop? Overvalued means the stock prices should drop.
- gareim 10y ago
  I have no opinion on whether GS and MS are overvalued, but here's a fun quote from Keynes. "The market can stay irrational longer than you can stay solvent."
Alex3917 10y ago
> The whole market is overvalued, not just the tech unicorns. To the extent that Intel and the tech unicorns are complements, Intel's profits declining may actually signal that tech unicorns are undervalued.
qaq 10y ago
Asset inflation caused by FED flooding the banks with cheap $.
- bsbechtel 10y ago
  That's what happens when you add more money to the system. It flows to highly liquid assets first.
  - gozur88 10y ago
    Well, there's no point in putting your money into bonds right now. For all the interest you get you may as well use it to stuff your mattress.
AJ007 10y ago
If helicopter money is the next step after 0 to negative interest rates, the stock market may be a pretty good deal right now. Get paid a lot more money, receive double digit gains on your retirement account year after year -- and be completely fucked in the process, ironically, because prices went up even faster and its more profitable to simply hoard things than sell them.
- Inthenameofmine 10y ago
  People QE seems to be the very last thing they want to do, which I think really tells a story here. Considering the money the government is still pumping into the market directly, I don't think people QE will have the same effect. It really depends on how it's executed though.
djsumdog 10y ago
I don't see why job losses are a bad thing. The last generation of machines was built so well that people don't need new ones. Good! This should be a great thing. Valuing growth over sustainability makes these backwards ass goals of hiring more, building more and growing. The way this is spun is pretty horrible. Amazon and Wal-mart losing is a good thing for the environment and society as a whole. You yell, "But people lose their jobs..." There are more jobs, plus why does everyone need a job anyway? Can people in Silicon Valley not make $150 ~ $250k a year, everyone else get a minimum income and we work together to make better art, smaller factories and a world that will last much longer by recycling and rebuilding and not needing to buy an endless supply of shit?! "Ending is better than mending. The more stitches, the less riches." -Brave New World, Huxley.
- teraflop 10y ago
  > You yell, "But people lose their jobs..." There are more jobs, plus why does everyone need a job anyway? This is kind of silly. Job losses are a bad thing precisely because we don't yet live in a world where you can get by on a guaranteed minimum income without a job. If you think it's worthwhile to push society in that direction, then great, but don't kid yourself that believing in it is the same as having already accomplished it.
  - megablast 10y ago
    Right, they are obviously bad for the people losing their jobs and for the society. But are they bad for Intel? I think that was his point.
  - drewm1980 10y ago
    Some european countries have already achieved this; your unemployment benefits after getting fired are a significant fraction of your previous salary, and slowly ramp down. You pay for it in taxes (and then some), but at least you know you can still make rent if you get canned.
    - ovi256 10y ago
cubano 10y ago
Of course it is...its has been and is being totally propped up by the Fed monetizing debt with equity purchasing ie QEI, II, III with QEIV being considered soon[1]. This is nothing but an asset bubble that is sure to burst someday, as is akin to what the Gov't, the credit agencies, and WS did with housing and mortgages back in the 2000's that led to the meltdown and TARP. [1]http://www.safehaven.com/article/39140/jobs-report-moves-fed-one-step-closer-to-qe-iv http://www.safehaven.com/article/39140/jobs-report-moves-fed...
megablast 10y ago
You should start a new index, called the 3 index, that just looks at 3 companies. That should be enough to gauge the market, right?
- jonknee 10y ago
  The DJIA only has 30 which is always surprising to me (to its credit it tracks with the S&P 500 pretty well).
  - dgemm 10y ago
    The DJIA is also share-price weighted. It's an objectively bad index and I find it surprising that it's still widely followed.
vicinno 10y ago
hard to understand the market.
tim333 10y ago
Yup overvalued. The GMO report which is about the best source I've found for this stuff had the projected 7 year return for US equities at -2%/year which is not great. https://www.gmo.com/docs/default-source/public-commentary/gmo-quarterly-letter.pdf https://www.gmo.com/docs/default-source/public-commentary/gm... p9
rudyl313 10y ago
The market movement can be explained somewhat by the fed's rate hike expectations changing (worsening economic conditions means that the fed is more cautious about raising rates, so discount rates are lower and valuation models are higher). It's also about what the market expected earnings to be. Yes, the tech earnings are beating up the NASDAQ, but people actually expected worse from the financial sector given the very low rates.
kaonashi 10y ago
Money's gotta get parked somewhere.
option_greek 10y ago
You can thank Fed for that. I always wondered why Janet Yellen worries so much about stock markets. I mean isn't her duty to look at economy and make decisions instead all I see are ways to placate market by postponing things for ever.
bubbleRefuge 10y ago
>yet, the Dow just hit a 9-Month high, and the S&P500 is >now above 2100. Its because bad news is good news in the twisted upside down world of speculating on the Fed's interest rate policy direction via the stock market. Expectations of rate hikes go further into the future with every bad economic indicator released and there are many(retail sales, auto, housing, industrial production, rail traffic, oil and gas, capex) . Will continue to wait for the day the market finally figures out that interest rate policy frameworks are broken, the Fed has no more ammunition, and the stock market jumps out the window rather than using the stairs. At that point, I'm buying lads.
- marmadukester39 10y ago
  What's a lad? As someone who instinctually believes this is a house of cards, understanding how to prepare financially is a real challenge.
  - phatfish 10y ago
    A group of males, like a flock of swans ;)
  - bubbleRefuge 10y ago
    deposit in an FDIC insured account or US Treasury securities of short duration.
zouhair 10y ago
It feels mostly all fake.
LordKano 10y ago
US Steel just got ride of 25% of its non-union workforce. ATI just announced that it would be laying off 1/3 of its non-union workforce. Carrier is moving manufacturing operations to Mexico. We're on the verge of something really big and really bad.
purplelobster 10y ago
I love it when people make doom and gloom predictions. If you are so convinced, put your money where your mouth is. Short the S&P500 with everything you've got and post a screen shot here.
- knicholes 10y ago
  I've sold all of my stocks and RSUs in anticipation of a crash.

by tma-1 10y ago

bduerst 10y ago

>Bubble Four companies don't represent the market. Come on. I swear some users here will wish will wish bubbles out of the air to gripe about.

tim333 10y ago
I don't think anyone above said "bubble". Overvalued is a different thing markets are usually either over or undervalued and probably overvalued today. Bubbles proper are kind of rare, the last major clear one being the 2006 housing bubble. You could argue there's a bond bubble presently.
- bduerst 10y ago
  You're right - Claiming the markets are overvalued like the unicorn bubble isn't literally saying there is a bubble, it's just implying there is. There is most likely a corporate bond bubble, as we know from representative market signals. With the S&P 500 though, four companies are not representative signals.

trollingineeer 10y ago

You understand nothing about the markets or the stock market. But like everyone else here on HackerNews you think you are knowledgeable in all things.

dntrkv 10y ago

If you pick and choose stocks, you can tell any story you want. Intel cutting its workforce is more of a reflection on the state of the PC market rather than the US economy as a whole. I'm not saying the market is overvalued or not, but this is in no way indicative of that.

adrenalinelol 10y ago
^ To add to this I'd lay say the over-valuation(s) are a side-effect of our monetary policy being in never-ending "stimulus" mode. On Intel I think the "everything is going mobile" is PR for investors, the PC market doesn't have any foreseeable growth potential atm.
- mizchief2 10y ago
  Why make things when you can borrow money for nothing and move paper around for profit.
- cft 10y ago
  The stimuls mode is a permanent regime now. It's good in the short term, but I do not know if anybody understood mid- and long-term consequences of this new permanent mode.
  - wuliwong 10y ago
    There is nothing mysterious about the short, mid or long term effects of artificially low interest rates and quantitative easing. edit Here's a link to read about it. https://mises.org/library/unseen-consequences-zero-interest-rate-policy https://mises.org/library/unseen-consequences-zero-interest-...
  - criley2 10y ago
    "The stimulus mode is a permanent regime now" As a general FYI to those reading -- please fact check before commenting. The Federal Reserve's quantitative easing program ended on Oct 29th, 2014 (538 days ago!) It is difficult to assert that a program which ended over 500 days ago is permanent. Additionally, one may be willing to assert that "ZIRP is permanent regime now" too, to tack onto the culture that central banking has entered a new era. For anyone who did not see that news, ZIRP (zero interest rate policy) ended on Dec 15, 2015 with a rise, and is currently believed to rise again at the next meeting.
    - 10y ago

Jerry2 10y ago

>The whole market is overvalued, not just the tech unicorns. Yep. That's what Peter Thiel is saying as well: https://news.ycombinator.com/item?id=11485376 https://news.ycombinator.com/item?id=11485376

tma-1 10y ago
I am not surprised. I am a huge fan of Thiel, his book Zero to One was a real eye opener for me.
SixSigma 10y ago
Aside from if he's right or not, that is the belief one would expect him to hold, his other option is "looks like I'm a bad investor after all".
- mfukar 10y ago
  One can't be a bad investor and learn from their mistakes, presumably?
  - SixSigma 10y ago
    Yes one can learn but when one's investment is correlated to how one talks about it, best to keep those lessons to yourself and make better investments in future. "My investments are over valued, oh the lessons I have learned" "All investments are overvalued, oh the lessons we will learn" are two very different statements.

alanwatts 10y ago

>The whole market is overvalued, not just the tech unicorns. Who is it overvalued by, and how is the "true" value determined?

TheOtherHobbes 10y ago
The actual information from markets is in estimated future prices, not the current bid/ask spread. The true value is determined by what happens next, for short to medium values of "next." Current fundamentals simply don't support a future of continuing growth. A correction is certain. The only questions are when, how fast, and how much.
clord 10y ago
Suppose the market just tracks widget factories. Every factory produces the same quality widgets, all shipping is flat-rate by distance and there are no tariffs or taxes. In this market, it's easy to determine market value of any particular widget factory: market share of world-wide production. Suppose everyone expects the demand for widgets to grow by 1% per year for the next 10 years. This growth might get priced into the market with some sort of net present value calculation. Capital will flow into building new widget factories to fund all of this new construction. Now what if actually an asteroid hits a city with lots of widget demand. 50% of demand is wiped out instantly. Well in this case, everyone was overvaluing the market for widgets! All of those net-present-value calculations were way off. The market will correct. Or maybe the asteroid takes out 50% of production. Suddenly much more investment in widget factories is required. The price shoots up to capitalize all of the construction, since demand has not changed. In either case, before the asteroid the market was not correctly valued since no one had yet priced in the asteroid.
- deleted 10y ago
  [deleted]
- UK-AL 10y ago
  It wasn't really over valuing the price widgets. Valuation only includes all available information. You can't expect random acts of God to be priced in. Overvalution is when psychology everyone is bullish, but the facts are not backing that up.

hkmurakami 10y ago

Healthcare as a sector is doing pretty well. Consolidation down to 3 major players will likely increase their margins further.

cordite 10y ago
Which aspects are you referring to?

jhulla 10y ago

To be pedantic: the market is perfectly valued at every moment. Of course market prices will change, sometimes very quickly. BTW, this is a great site for tracking S&P ratios: http://www.multpl.com/ http://www.multpl.com/

pjlegato 10y ago
The efficient market hypothesis (the idea that the market is by definition perfectly valued at every moment) is highly controversial, and actively rejected by many finance and economics experts of all political views.
- jhulla 10y ago
  My point is simply a tautology: the price is the price. Now the price may change, someone may have their thumb on the scale, there may be shill bidders driving sentiment, etc. But at the moment you get a bid/ask spread, that is what you get. Practically speaking, I personally don't believe the efficient market hypothesis due to the very obvious meddling by political actors, central banks, national treasuries, etc. Behavioral finance has also consistently demonstrated that humans do not react rationally in markets.
  - maaku 10y ago
    That may have been your point, but it's not what you said. "Perfectly valued" means that the price is what it should be (for some definition of "should").
    - jhulla 10y ago
      "Perfectly valued" to me means that at that moment, the price reflects the actions of everyone. It includes the actions of all buyers/sellers who choose to participate and not participate, the regulators, as well as the meddlers. My point is a pedantic one referring to the OP using the word "overvalued". The market price is never over/under valued. It is merely the market price at that moment.

mathattack 10y ago

Goldman's stock price is approximately 25% off it's 12 month high. [0] Morgan Stanley is approximately 35% off. [1] Seems like the market is properly taking in their bad news. Some parts of the market do fine, others get hit. And yes, some might be over-valued. When interest rates are low, the future cash flows of companies are discounted back at a lower rate. So if all things are equal (which they never really are, but humor me) low rates imply higher prices for both equities and bonds, and especially startups whose cash flows are mostly in the future. [0] https://www.google.com/finance?cid=663137 https://www.google.com/finance?cid=663137 [1] https://www.google.com/finance?cid=660479 https://www.google.com/finance?cid=660479

tma-1 10y ago
Both GS and MS (as well as other FIs) are off there highs because of all the volatility in the markets the past 6 months and worries about losses from bad energy loans. BAC, WF, Citi are all off their 12-month highs by a significant margin despite doing relatively well in Q1. Also, this has nothing to do with discounting the cash flows, it's mostly stock buybacks that's driving all the action: http://www.bloomberg.com/news/articles/2016-04-19/early-warning-signs-of-recession-flash-faintly-in-u-s-jobs-data http://www.bloomberg.com/news/articles/2016-04-19/early-warn...
- mathattack 10y ago
  These go hand in hand. The debt issued to buy back the stock is cheap. :-)
- thecosas 10y ago
  I think you may have overlooked the recent DOL Proposal and it's potential impact on profit margins if it pushes forward. Good for consumers, but bad if you have to improve processes, hire people to handle them, etc. http://blog.emoneyadvisor.com/industry-news/trending/complete-coverage-of-the-dol-fiduciary-ruling/ http://blog.emoneyadvisor.com/industry-news/trending/complet...
  - bwilliams18 10y ago

deleted 10y ago

[deleted]

free2rhyme214 10y ago

Spot on!

jules 10y ago

How can the whole market be overvalued? Prices are relative, no?

redcalx 10y ago
Short answer: No. E.g. if you buy 'shares' in an index (via an ETF), you're effectively buying a weighted basket of the component shares in the index. If the individual shares are overpriced then so is the index as a whole. Hence the S&P500 has a price:earnings ratio, and you can decide for yourself if that ratio is looking 'toppy'.
clord 10y ago
In one sense yes — if the sum total of the market is '1' and everyone is just some fraction of that. Then there can only ever be relative price changes. But the sum of all prices does in fact vary. I'm sure you're familiar with Tulip Mania. Prices can be bid ever-higher in a cycle, and they can also decline in tandem as in the depression. For the entire market to have an expanding total price, new money has to be entering the market, or the net real value of the underlying financial assets has to be declining. Either way, the entire market can become overvalued or undervalued, especially compared to non-financial (or illiquid) assets denominated in the same currency — e.g., wages, energy, or land.
thecourier 10y ago
it works like this: Imagine you have a huge amount of money, enough to buy whole companies like Apple, Coca Cola and Walmart. you want to keep your money and even make it grow, so you're looking for good businesses to buy. I have one company for sale at USD329 billions, it grows 50%-100% a year for now and currently generates USD3.29 billions I have another company for sale at USD219 billions, it is shrinking at 1.4% a year and currently generates USD14.69 billions And finally I have another company for sale at USD200 billions, it is growing/shrinking between -8% and 60% a year and generates USD7.35B Most people prefer the second one, who makes you a good 7% return a year. the first one looks good, but will take at least 6 years to be as good as the second and the last one is so so. the companies where 1) Facebook 2) Walmart and 3) Coca cola. (we're ignoring how much assets and liabilities they have for simplicity) And as you see, even when facebook has a promising future, we don't know if it will reach a good value/margin level as walmart. so we may agree it's overvalued at is current price. Hope this shed some light, I'm not a trader or something, so this info is very simplistic P.D.: this analysis is called Fundamental Analysis, you can go deeper and honestly it has worked very well in my portafolio. I bought stock in Gerdau (GGB), a brazilian steel company, because I studied as a whole business and discover it was priced very low. that was starting in November, I bought those stocks at 1.22 and recently they reached 2.44. I basically duplicated my money in 6 months. Remember stocks aren't just tickets, they are little parts of a big business.

melling 10y ago

Can you explain why the Goldman and MS stocks didn't drop? Overvalued means the stock prices should drop.

gareim 10y ago
I have no opinion on whether GS and MS are overvalued, but here's a fun quote from Keynes. "The market can stay irrational longer than you can stay solvent."

Alex3917 10y ago

> The whole market is overvalued, not just the tech unicorns. To the extent that Intel and the tech unicorns are complements, Intel's profits declining may actually signal that tech unicorns are undervalued.

qaq 10y ago

Asset inflation caused by FED flooding the banks with cheap $.

bsbechtel 10y ago
That's what happens when you add more money to the system. It flows to highly liquid assets first.
- gozur88 10y ago
  Well, there's no point in putting your money into bonds right now. For all the interest you get you may as well use it to stuff your mattress.

AJ007 10y ago

If helicopter money is the next step after 0 to negative interest rates, the stock market may be a pretty good deal right now. Get paid a lot more money, receive double digit gains on your retirement account year after year -- and be completely fucked in the process, ironically, because prices went up even faster and its more profitable to simply hoard things than sell them.

Inthenameofmine 10y ago
People QE seems to be the very last thing they want to do, which I think really tells a story here. Considering the money the government is still pumping into the market directly, I don't think people QE will have the same effect. It really depends on how it's executed though.

djsumdog 10y ago

I don't see why job losses are a bad thing. The last generation of machines was built so well that people don't need new ones. Good! This should be a great thing. Valuing growth over sustainability makes these backwards ass goals of hiring more, building more and growing. The way this is spun is pretty horrible. Amazon and Wal-mart losing is a good thing for the environment and society as a whole. You yell, "But people lose their jobs..." There are more jobs, plus why does everyone need a job anyway? Can people in Silicon Valley not make $150 ~ $250k a year, everyone else get a minimum income and we work together to make better art, smaller factories and a world that will last much longer by recycling and rebuilding and not needing to buy an endless supply of shit?! "Ending is better than mending. The more stitches, the less riches." -Brave New World, Huxley.

teraflop 10y ago
> You yell, "But people lose their jobs..." There are more jobs, plus why does everyone need a job anyway? This is kind of silly. Job losses are a bad thing precisely because we don't yet live in a world where you can get by on a guaranteed minimum income without a job. If you think it's worthwhile to push society in that direction, then great, but don't kid yourself that believing in it is the same as having already accomplished it.
- megablast 10y ago
  Right, they are obviously bad for the people losing their jobs and for the society. But are they bad for Intel? I think that was his point.
- drewm1980 10y ago
  Some european countries have already achieved this; your unemployment benefits after getting fired are a significant fraction of your previous salary, and slowly ramp down. You pay for it in taxes (and then some), but at least you know you can still make rent if you get canned.
  - ovi256 10y ago

cubano 10y ago

Of course it is...its has been and is being totally propped up by the Fed monetizing debt with equity purchasing ie QEI, II, III with QEIV being considered soon[1]. This is nothing but an asset bubble that is sure to burst someday, as is akin to what the Gov't, the credit agencies, and WS did with housing and mortgages back in the 2000's that led to the meltdown and TARP. [1]http://www.safehaven.com/article/39140/jobs-report-moves-fed-one-step-closer-to-qe-iv http://www.safehaven.com/article/39140/jobs-report-moves-fed...

megablast 10y ago

You should start a new index, called the 3 index, that just looks at 3 companies. That should be enough to gauge the market, right?

jonknee 10y ago
The DJIA only has 30 which is always surprising to me (to its credit it tracks with the S&P 500 pretty well).
- dgemm 10y ago
  The DJIA is also share-price weighted. It's an objectively bad index and I find it surprising that it's still widely followed.

vicinno 10y ago

hard to understand the market.

tim333 10y ago

Yup overvalued. The GMO report which is about the best source I've found for this stuff had the projected 7 year return for US equities at -2%/year which is not great. https://www.gmo.com/docs/default-source/public-commentary/gmo-quarterly-letter.pdf https://www.gmo.com/docs/default-source/public-commentary/gm... p9

rudyl313 10y ago

The market movement can be explained somewhat by the fed's rate hike expectations changing (worsening economic conditions means that the fed is more cautious about raising rates, so discount rates are lower and valuation models are higher). It's also about what the market expected earnings to be. Yes, the tech earnings are beating up the NASDAQ, but people actually expected worse from the financial sector given the very low rates.

kaonashi 10y ago

Money's gotta get parked somewhere.

option_greek 10y ago

You can thank Fed for that. I always wondered why Janet Yellen worries so much about stock markets. I mean isn't her duty to look at economy and make decisions instead all I see are ways to placate market by postponing things for ever.

bubbleRefuge 10y ago

>yet, the Dow just hit a 9-Month high, and the S&P500 is >now above 2100. Its because bad news is good news in the twisted upside down world of speculating on the Fed's interest rate policy direction via the stock market. Expectations of rate hikes go further into the future with every bad economic indicator released and there are many(retail sales, auto, housing, industrial production, rail traffic, oil and gas, capex) . Will continue to wait for the day the market finally figures out that interest rate policy frameworks are broken, the Fed has no more ammunition, and the stock market jumps out the window rather than using the stairs. At that point, I'm buying lads.

marmadukester39 10y ago
What's a lad? As someone who instinctually believes this is a house of cards, understanding how to prepare financially is a real challenge.
- phatfish 10y ago
  A group of males, like a flock of swans ;)
- bubbleRefuge 10y ago
  deposit in an FDIC insured account or US Treasury securities of short duration.

zouhair 10y ago

It feels mostly all fake.

LordKano 10y ago

US Steel just got ride of 25% of its non-union workforce. ATI just announced that it would be laying off 1/3 of its non-union workforce. Carrier is moving manufacturing operations to Mexico. We're on the verge of something really big and really bad.

purplelobster 10y ago

I love it when people make doom and gloom predictions. If you are so convinced, put your money where your mouth is. Short the S&P500 with everything you've got and post a screen shot here.

knicholes 10y ago
I've sold all of my stocks and RSUs in anticipation of a crash.