Thoughts from Thursday, August 13, 2020

  1. FANMAG – still pressing higher, but isn’t this a bit much?

FANMAG, if you were wondering, stands for Facebook, Apple, Netflix, Microsoft, Amazon and Google.  These companies have been doing the heavy lifting of the markets for the past 3 years, but as of late, they have gone to new heights.  FANMAG value as a group is now bigger than all of the companies in the Financials, Industrials, Materials, and Energy sectors of the S&P 500 COMBINED.  In an even crazier example, Apple’s value is nearly equal to that of the entire Russell 2000 index.

There are two ways this ends:  ugly or a disaster.  History is always our guide here, and in the past, every time we have seen similar extremes, the end result is these companies losing 40%+ in another correction.  Will that start tomorrow?  Probably not.  But thinking that these companies are untouchable could be a giant mistake if you are buying today hoping they will continue to sky-rocket.

  1. Unemployment claims

Wall Street and politicians are cheering the latest weekly unemployment claims released today since they were less than 1m.  That may seem like a big deal, and as this chart shows, the trend for new unemployment claims continues to fall slowly but surely.

But keep this perspective…until COVID-19, there was NEVER a single week of 1m claims.  EVER.  Continuing claims counting all unemployment assistance amounts to 28m people per the same report.  Do you know how many people are in the workforce in America?  Roughly 160m.

So the math says 28/160 = 17.5% of Americans are receiving some form of unemployment benefit.

Employment drives an economy.  If we can’t get people back to work, the economic doldrums will continue for many years to come.

  1. Netflix rally ahead?

At this point, we are hearing all the excuses why stocks are not over-valued.  Recovery is here.  Fed won’t let us down.  It’s a new era for technology so tech companies should be valued more.  I can go on and on and on.  But then this article caught my attention, and I wonder if anyone else is paying attention to how irrational the arguments are for Netflix.  The stock has rallied 40% since April 1st.  Is that not exceptional?  While maybe not on par with some of the other outrageous tech companies, how can 40% over 3 months NOT ALREADY BE CONSIDERED A BREAKOUT?

Here are the reasons (greed…total return since 4/1/2020):  

TSLA is up 339%

AAPL is up 92%

NVDA is up 88%

AMZN is up 67%

FB is up 57%

But 40% is a stark contrast to its 3-year growth of 292%, so maybe the whining and disappointment is justified?

Leave a Reply

Your email address will not be published. Required fields are marked *