9 ms·

U.S. tech stocks are now worth more than the entire European stock market

102 points by justinzollars 6y ago

cyrusvaleriy 6y ago
Money printer goes Brrrrrrr. Hopefully some of that $ will be put into bitcoin.
baconandeggs 6y ago
U.S. tech stocks are now priced higher than the entire European stock market.
- ng12 6y ago
  And I can use that price to turn my stocks into real, hard cash. It's not like it's funny money.
  - baconandeggs 6y ago
    Sure, but "hard cash" is funny money; that's why people investing in FAANG don't want it and prefer stocks.
    - ng12 6y ago
      Fine, but then the EU market is equally funny.
  - mamon 6y ago
    You can, but if everyone tried that at once then the price would fall, and most people wouldn't get as much money as they think they now have. So in that sense company valuations are not real. We might pretend that Tesla is worth 2100 USD per share until someone shouts: "Emperor is naked"
  - dontworry99 6y ago
    For now. The government is looking to let VCs use 401k’s as Monopoly money. You might go to liquidate only to find that YOUR pension...er investment was lost without you knowing it. https://www.salon.com/2020/06/16/trump-labor-department-quietly-offers-up-401k-plans-to-private-equity-vultures_partner/ https://www.salon.com/2020/06/16/trump-labor-department-quie... “You accepted the rules by buying in. Can’t say you weren’t aware the market is risky!” That’s what they keep telling grandparents when their pensions were flushed down the drain. Let’s keep trusting political grifters of our agency to do right by it despite historical evidence though.
    - jjoonathan 6y ago
      The roaring 20s are back, baby!
    - armitron 6y ago
      You're presenting this as if investors have no choice in the matter. As far as I know, there is 401k transparency meaning that investors know what their money is invested in. On top of that, all companies I've worked for in the USA allowed me to choose exactly how and where my money will be invested. Nothing described by the article you posted lets me think that this will be no longer the case.
      - dontworry99 6y ago
        You’re assuming your behavior is the norm. You are aware that’s possible. Not everyone is. Employers at a lot of companies just pick a default and employees forget about it. It’s not reasonable to expect the masses to babysit ephemeral inventions that they aren’t ever aware of. Ok, man. Yep we should all just stick in our heads this is of course proper application of agency defined “for us”. Paulo Freire is rolling over in his grave. This culture is falling apart because it’s looking for financial efficiency above all else, not emotional resiliency. Just gonna ignore whatever immutable aspects of reality get in the way of that.
    - nightski 6y ago
      I'm confused because back when I had a 401(k) I managed it and chose what investments the money went into. So I don't see how that money would magically flow into private equity? Unless they mean mutual funds could start investing in private equity? But this would show up in the prospectus would it not? Or are they just arguing that many Americans are completely ignorant and oblivious to what their 401(k) is invested in and would accept private equity investments because they blindly follow advice?
  - ex_amazon_sde 6y ago
    > And I can use that price to turn my stocks into real, hard cash you can - but if good fraction of the stockholders were to lose hope and start selling stock the market value would evaporate into thin air very quickly. OTOH if the value of those stocks was 80% backed by stable assets (production plants, building, land, gold, ...) it would evaporate much less quickly. That fits the definition of virtual, speculation-based, value.
    - smabie 6y ago
      I mean, in a lot of cases, it's backed by cash flow. I get what you're saying, but FAANG stocks aren't these pie in the sky high P/E kind of stocks: they are delivering insane revenue and gross profits.
Guzba 6y ago
The growth in tech stocks has been pretty insane imo. It's so easy to be afraid though and call this another 2000, but we really don't know what the future holds. I wish Europe had it's own set of exciting tech companies. That would be amazing. As a human living on this planet, the more things available to me, the better. Unfortunately, Europe doesn't seem to do much anymore. Google "European growth stocks". I want them back in the game.
- deleted 6y ago
  [deleted]
- baconandeggs 6y ago
  The "growth" in tech has been entirely driven by monetary policy. Google or Facebook or Apple or Netflix or Amazon have done nothing special than what they've been doing for the last 5 years. I wish we were getting insane tech out of this bull run but the truth is there's no "innovation" behind it and their paper is just being used as a shield by investors which is why their stocks keep going up.
  - spideymans 6y ago
    > The "growth" in tech has been entirely driven by monetary policy. For the uninformed, what monetary policy exactly is driving this growth?
    - hpoe 6y ago
      Not OP but my guess is the low interest rates and the high amount of cash the Fed has been handing out.
    - free_rms 6y ago
      "Quantitative easing". One way to juice the economy is just print more money and give it to everyone. Everyone's richer, yay! Except you haven't increased production or necessarily consumption, so prices will just equalize to the new money supply and you get consumer price inflation. For QE, we got smarter, and just gave all of the money to the bankers, because that's what all the economic experts who work at banks said to do. So all of the inflation happened in assets held by banks and rich people instead -- tradeable securities and real estate in coastal areas.
DeonPenny 6y ago
Europe growth in the past 12 years has be pretty anemic for the past 10 years. Look at the GDP per capita growth of lets say germany and you get a real good idea of how mismanage their economy has been for the past decade so this doesn't surprise me.
- systemvoltage 6y ago
  Perhaps you’re getting downvoted for not providing sources. Can you add citations?
  - deleted 6y ago
    [deleted]
  - DeonPenny 6y ago
    You can google german gpd per capita and get the information from the world bank with a interactive chart. The German gdp per capita in 2008 was 45k in 2018 47k. The US in same time 48k to 62k. If your country growth rate is number is that slow of course you are going to lag behind
hpoe 6y ago
I would argue tech isn't high because of the value of it but instead it is a combination of being seen as a safer investment while also having potential for growth that outstrips inflation. If there is a company that is only growing slightly year over year, then due to the loose money policies of the fed, they won't be able to make your real money adjusted for inflation. Bit another issue may be that as Matt Levine likes to point out private equity markets are the new public markets. So the question is what will be the next step in financial engineering?
sirmoveon 6y ago
"Pour water into your wine to create more wine" sort of scenario. Why nobody is talking about the USD being diluted and the inflation effects are embodied in virtual equity valuations?
- KMag 6y ago
  If that's the case, one would expect the FX rate changes to equally increase European market valuations, if USD is the unit of account (numerare). If the Euro were being diluted at a rate that kept FX rates in check, then one would expect that to equally buoy European market valuations. So, there may well be something to be said about USD dilution, but I don't see how it affects the relative market capitalizations of the US tech sector vs. the Eurozone markets.
  - Rury 6y ago
    Not necessarily. It's all supply/demand driven. Just because there's a sudden increase in money available, doesn't necessarily mean everything is going to inflate in valuations. Only things that are in demand will inflate. Take it this way: If everyone who received a stimulus check this year went "Awesome I'm going to go buy 30 turkeys with this stimulus money!" - The price of turkeys would skyrocket as the demand for turkey's skyrocketed with all the additional money available, but the supply of turkeys didn't proportionally increase. However, the price of shirts would remain relatively the same as the demand didn't skyrocket for shirts. And this effect applies to foreign currencies/foreign stocks... as they're just another thing you can trade dollars for. This is also why CPI is a garbage metric for inflation. It only tracks certain things, it doesn't track things like stocks or real estate... Today people mostly have what they need. With all this additional money they received, most go "where do I put this money? Eh may as well put it into stocks..." And they buy stocks that they think are stable and good investments - and only those stock valuations inflate.
  - sirmoveon 6y ago
    Most world economies keep their reserves in USD or are highly leveraged with USD transactions. The denominator by which everyone has to abide by is the USD and its probably why the relative advantage you are speaking of doesn't present itself.
RedditKon 6y ago
I find the headline a bit misleading bc even European tech companies like Spotify are listed on the US exchanges.
hogFeast 6y ago
It is worth understanding that the European stock market, bar the UK and possibly Sweden, isn't like the US. Most companies finance themselves through banks. Whilst Europe as an economic unit is larger than the US, capital markets are still basically non-existent (bar the efforts of the ECB to throw cash at anyone who raises money from capital markets). Also, the rise of tech stocks is significant not only relative to other economies but relative to other large stocks in the US. The S&P500 is more concentrated than it has ever been and is pretty close to what you see in emerging markets (where the top 5 or so stocks make up a huge chunk of the total index).
- smabie 6y ago
  Yeah, a lot of people don't realize how market cap weighted actually gets you a not very diversified portfolio. For example, if you hold the S&P 500, about 8% of that is Apple, 6% is Amazon, 6% Microsoft, and 4% Google. So 25% of your capital is going to 4 names, all in the same sector. Meanwhile, the smallest holdings will be under 1%. Though market cap weighted is good for avoiding trading fees (you don't have to rebalance when the price of a stock changes), it's bad for investors. Not only do you miss out on some diversification, you end up with undue exposure to only a few sectors and you miss out on Fama and French's size factor by only investing in large companies.
  - hogFeast 6y ago
    The size factor has lost money pretty consistently. It is also a very suspicious factor generally because there are very obvious non-risk factor explanations (i.e. liquidity). Just generally, FF do very irrational things with their models (i.e. not including momentum)...they are credible but the way they do things is obviously not quite correct (Fama spent decades saying this kind of thing was totally impossible). Market cap weighting is fine, if you actually end up with something reasonable...which you don't anymore. I wouldn't really recommend equal weighting either...so...
hatenberg 6y ago
The orange emperor is making sure its him and his fictional reality or chaos.
vharuck 6y ago
What's the benefit of lumping all these companies into a single bucket and calling it "tech?" Looking at it as an investor, it's a distracting term. When the pandemic hit, did Uber start making more money like Amazon? If more countries pass laws like the GDPR, will that hurt SalesForce as much as Facebook? The pandemic is a great test for how we look at the market. If two companies fare wildly differently in an extreme event, were they every really in the same category? If you own a department store, don't "diversify" by investing a lot in Amazon. You'll just get a double whammy whenever disposable income is hurting.
- smabie 6y ago
  Okay of the 11 GICS sectors, give me examples of what you think some of these companies should be classified as.
  - vharuck 6y ago
    In addition to information technology, because a lot of them also offer cloud computing or other kind of developer-targeted services: Apple: Consumer discretionary (electronics) Alphabet: Communication services (advertising and fiber networks), health care (mostly research), financials (investing), whatever urban planning is classified under, Amazon: Consumer discretionary (retail), consumer staples (food) Microsoft: Industrials (office services), communication services Facebook: Communication services (chat apps and advertising) I could be totally off base, and investors do ignore the "tech" label. But from what I've heard in the news and seen in discussions, it doesn't seem so.
jaclaz 6y ago
Maybe I have it wrong, but I would replace "are now worth" with "are now valued", I always feel like "worth" to be more suitable to something more tangible than stock values, which are often crazy on both sides of the pond.

102 points by justinzollars 6y ago

cyrusvaleriy 6y ago

Money printer goes Brrrrrrr. Hopefully some of that $ will be put into bitcoin.

baconandeggs 6y ago

U.S. tech stocks are now priced higher than the entire European stock market.

ng12 6y ago
And I can use that price to turn my stocks into real, hard cash. It's not like it's funny money.
- baconandeggs 6y ago
  Sure, but "hard cash" is funny money; that's why people investing in FAANG don't want it and prefer stocks.
  - ng12 6y ago
    Fine, but then the EU market is equally funny.
- mamon 6y ago
  You can, but if everyone tried that at once then the price would fall, and most people wouldn't get as much money as they think they now have. So in that sense company valuations are not real. We might pretend that Tesla is worth 2100 USD per share until someone shouts: "Emperor is naked"
- dontworry99 6y ago
  For now. The government is looking to let VCs use 401k’s as Monopoly money. You might go to liquidate only to find that YOUR pension...er investment was lost without you knowing it. https://www.salon.com/2020/06/16/trump-labor-department-quietly-offers-up-401k-plans-to-private-equity-vultures_partner/ https://www.salon.com/2020/06/16/trump-labor-department-quie... “You accepted the rules by buying in. Can’t say you weren’t aware the market is risky!” That’s what they keep telling grandparents when their pensions were flushed down the drain. Let’s keep trusting political grifters of our agency to do right by it despite historical evidence though.
  - jjoonathan 6y ago
    The roaring 20s are back, baby!
  - armitron 6y ago
    You're presenting this as if investors have no choice in the matter. As far as I know, there is 401k transparency meaning that investors know what their money is invested in. On top of that, all companies I've worked for in the USA allowed me to choose exactly how and where my money will be invested. Nothing described by the article you posted lets me think that this will be no longer the case.
    - dontworry99 6y ago
      You’re assuming your behavior is the norm. You are aware that’s possible. Not everyone is. Employers at a lot of companies just pick a default and employees forget about it. It’s not reasonable to expect the masses to babysit ephemeral inventions that they aren’t ever aware of. Ok, man. Yep we should all just stick in our heads this is of course proper application of agency defined “for us”. Paulo Freire is rolling over in his grave. This culture is falling apart because it’s looking for financial efficiency above all else, not emotional resiliency. Just gonna ignore whatever immutable aspects of reality get in the way of that.
  - nightski 6y ago
    I'm confused because back when I had a 401(k) I managed it and chose what investments the money went into. So I don't see how that money would magically flow into private equity? Unless they mean mutual funds could start investing in private equity? But this would show up in the prospectus would it not? Or are they just arguing that many Americans are completely ignorant and oblivious to what their 401(k) is invested in and would accept private equity investments because they blindly follow advice?
- ex_amazon_sde 6y ago
  > And I can use that price to turn my stocks into real, hard cash you can - but if good fraction of the stockholders were to lose hope and start selling stock the market value would evaporate into thin air very quickly. OTOH if the value of those stocks was 80% backed by stable assets (production plants, building, land, gold, ...) it would evaporate much less quickly. That fits the definition of virtual, speculation-based, value.
  - smabie 6y ago
    I mean, in a lot of cases, it's backed by cash flow. I get what you're saying, but FAANG stocks aren't these pie in the sky high P/E kind of stocks: they are delivering insane revenue and gross profits.

Guzba 6y ago

The growth in tech stocks has been pretty insane imo. It's so easy to be afraid though and call this another 2000, but we really don't know what the future holds. I wish Europe had it's own set of exciting tech companies. That would be amazing. As a human living on this planet, the more things available to me, the better. Unfortunately, Europe doesn't seem to do much anymore. Google "European growth stocks". I want them back in the game.

deleted 6y ago
[deleted]
baconandeggs 6y ago
The "growth" in tech has been entirely driven by monetary policy. Google or Facebook or Apple or Netflix or Amazon have done nothing special than what they've been doing for the last 5 years. I wish we were getting insane tech out of this bull run but the truth is there's no "innovation" behind it and their paper is just being used as a shield by investors which is why their stocks keep going up.
- spideymans 6y ago
  > The "growth" in tech has been entirely driven by monetary policy. For the uninformed, what monetary policy exactly is driving this growth?
  - hpoe 6y ago
    Not OP but my guess is the low interest rates and the high amount of cash the Fed has been handing out.
  - free_rms 6y ago
    "Quantitative easing". One way to juice the economy is just print more money and give it to everyone. Everyone's richer, yay! Except you haven't increased production or necessarily consumption, so prices will just equalize to the new money supply and you get consumer price inflation. For QE, we got smarter, and just gave all of the money to the bankers, because that's what all the economic experts who work at banks said to do. So all of the inflation happened in assets held by banks and rich people instead -- tradeable securities and real estate in coastal areas.

DeonPenny 6y ago

Europe growth in the past 12 years has be pretty anemic for the past 10 years. Look at the GDP per capita growth of lets say germany and you get a real good idea of how mismanage their economy has been for the past decade so this doesn't surprise me.

systemvoltage 6y ago
Perhaps you’re getting downvoted for not providing sources. Can you add citations?
- deleted 6y ago
  [deleted]
- DeonPenny 6y ago
  You can google german gpd per capita and get the information from the world bank with a interactive chart. The German gdp per capita in 2008 was 45k in 2018 47k. The US in same time 48k to 62k. If your country growth rate is number is that slow of course you are going to lag behind

hpoe 6y ago

I would argue tech isn't high because of the value of it but instead it is a combination of being seen as a safer investment while also having potential for growth that outstrips inflation. If there is a company that is only growing slightly year over year, then due to the loose money policies of the fed, they won't be able to make your real money adjusted for inflation. Bit another issue may be that as Matt Levine likes to point out private equity markets are the new public markets. So the question is what will be the next step in financial engineering?

sirmoveon 6y ago

"Pour water into your wine to create more wine" sort of scenario. Why nobody is talking about the USD being diluted and the inflation effects are embodied in virtual equity valuations?

KMag 6y ago
If that's the case, one would expect the FX rate changes to equally increase European market valuations, if USD is the unit of account (numerare). If the Euro were being diluted at a rate that kept FX rates in check, then one would expect that to equally buoy European market valuations. So, there may well be something to be said about USD dilution, but I don't see how it affects the relative market capitalizations of the US tech sector vs. the Eurozone markets.
- Rury 6y ago
  Not necessarily. It's all supply/demand driven. Just because there's a sudden increase in money available, doesn't necessarily mean everything is going to inflate in valuations. Only things that are in demand will inflate. Take it this way: If everyone who received a stimulus check this year went "Awesome I'm going to go buy 30 turkeys with this stimulus money!" - The price of turkeys would skyrocket as the demand for turkey's skyrocketed with all the additional money available, but the supply of turkeys didn't proportionally increase. However, the price of shirts would remain relatively the same as the demand didn't skyrocket for shirts. And this effect applies to foreign currencies/foreign stocks... as they're just another thing you can trade dollars for. This is also why CPI is a garbage metric for inflation. It only tracks certain things, it doesn't track things like stocks or real estate... Today people mostly have what they need. With all this additional money they received, most go "where do I put this money? Eh may as well put it into stocks..." And they buy stocks that they think are stable and good investments - and only those stock valuations inflate.
- sirmoveon 6y ago
  Most world economies keep their reserves in USD or are highly leveraged with USD transactions. The denominator by which everyone has to abide by is the USD and its probably why the relative advantage you are speaking of doesn't present itself.

RedditKon 6y ago

I find the headline a bit misleading bc even European tech companies like Spotify are listed on the US exchanges.

hogFeast 6y ago

It is worth understanding that the European stock market, bar the UK and possibly Sweden, isn't like the US. Most companies finance themselves through banks. Whilst Europe as an economic unit is larger than the US, capital markets are still basically non-existent (bar the efforts of the ECB to throw cash at anyone who raises money from capital markets). Also, the rise of tech stocks is significant not only relative to other economies but relative to other large stocks in the US. The S&P500 is more concentrated than it has ever been and is pretty close to what you see in emerging markets (where the top 5 or so stocks make up a huge chunk of the total index).

smabie 6y ago
Yeah, a lot of people don't realize how market cap weighted actually gets you a not very diversified portfolio. For example, if you hold the S&P 500, about 8% of that is Apple, 6% is Amazon, 6% Microsoft, and 4% Google. So 25% of your capital is going to 4 names, all in the same sector. Meanwhile, the smallest holdings will be under 1%. Though market cap weighted is good for avoiding trading fees (you don't have to rebalance when the price of a stock changes), it's bad for investors. Not only do you miss out on some diversification, you end up with undue exposure to only a few sectors and you miss out on Fama and French's size factor by only investing in large companies.
- hogFeast 6y ago
  The size factor has lost money pretty consistently. It is also a very suspicious factor generally because there are very obvious non-risk factor explanations (i.e. liquidity). Just generally, FF do very irrational things with their models (i.e. not including momentum)...they are credible but the way they do things is obviously not quite correct (Fama spent decades saying this kind of thing was totally impossible). Market cap weighting is fine, if you actually end up with something reasonable...which you don't anymore. I wouldn't really recommend equal weighting either...so...

hatenberg 6y ago

The orange emperor is making sure its him and his fictional reality or chaos.

vharuck 6y ago

What's the benefit of lumping all these companies into a single bucket and calling it "tech?" Looking at it as an investor, it's a distracting term. When the pandemic hit, did Uber start making more money like Amazon? If more countries pass laws like the GDPR, will that hurt SalesForce as much as Facebook? The pandemic is a great test for how we look at the market. If two companies fare wildly differently in an extreme event, were they every really in the same category? If you own a department store, don't "diversify" by investing a lot in Amazon. You'll just get a double whammy whenever disposable income is hurting.

smabie 6y ago
Okay of the 11 GICS sectors, give me examples of what you think some of these companies should be classified as.
- vharuck 6y ago
  In addition to information technology, because a lot of them also offer cloud computing or other kind of developer-targeted services: Apple: Consumer discretionary (electronics) Alphabet: Communication services (advertising and fiber networks), health care (mostly research), financials (investing), whatever urban planning is classified under, Amazon: Consumer discretionary (retail), consumer staples (food) Microsoft: Industrials (office services), communication services Facebook: Communication services (chat apps and advertising) I could be totally off base, and investors do ignore the "tech" label. But from what I've heard in the news and seen in discussions, it doesn't seem so.

jaclaz 6y ago

Maybe I have it wrong, but I would replace "are now worth" with "are now valued", I always feel like "worth" to be more suitable to something more tangible than stock values, which are often crazy on both sides of the pond.