• September 20, 2020

ELAM: Soaring valuations, what could go wrong? - Odessa American: Dennis Elam

ELAM: Soaring valuations, what could go wrong?

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Posted: Sunday, August 9, 2020 5:00 am

Apple’s market valuation is $1.9 trillion-bigger than the GDP of Canada, Russia, or Spain. Apple is now the world’s largest company and dominates the smartphone market. Tesla’s valuation is now larger than all other automakers. Tesla is worth $266 billion, GM a mere $50B.

Wall Street Journal

Even with July’s gains fewer than half of the 22 million jobs lost in March and April have been restored. Economists warn the rest of the lost ground will be a challenge to regain.

N Y Times

Stock market tops occur with soaring valuations, usually concentrated in fewer and fewer stocks. This is described as declining breadth. Indeed Apple has double from $220 to $440 since the March 28 low. Similar action occurred in RCA in the 1920s. It would take until the 1950s for RCA to regain its 1929 share price high.

The same could be said EDS in the 1960s. Homebuilder share prices soared into the Fall 2007 stock market high. The highs in the NASD stock index have not really been confirmed by new highs in other indexes. As with the dot.coms in March, 2000, the NASD shot to new highs by itself. The NDX has risen from 6,750 in March to 11,139, a 65% rise in six months.

The leaders of such companies at share price highs are universally regarded as some kind of genius. Congress grilled four of them representing Facebook, Amazon, Apple, and Microsoft, just last week. Congressional investigations and lawsuits are another bull market high feature.

We can cite earlier leaders like Ross Perot at EDS or Jack Welch at GE or currently, Elon Musk at Tesla as similar examples.

All the tech firms have displayed the kind of parabolic, investors are pouring in afraid of missing out vertical rallies. All of which is to say that the common denominators of past highs are all present. And of course the market has ignored riots, lootings, defunding the police, and a 34% drop in GDP.

None of this is a precision crystal ball. But it does suggest the possibility of a market high this week. The pullback may tell us more about whether the bull will last into and past the November election.

Last week we predicted higher crude oil prices. At $41.22 it is at least staying above recent support at $40. Exxon Mobil XOM rallied from $30 to $55 and is now under major moving averages at $43.44. The question is whether it will be forced to join other international oils which have cut dividends.

Our last column also warned caution for all the reasons cited above. That still sounds like good advice.

DAILY OIL PRICE: September 18

  • Crude Oil: 41.11   (+0.14).
  • Nymex MTD AVG:  39.4410.
  • Natural Gas: 2.048   (+0.006).
  • Gasoline: 1.2366   (+0.0122).
  • Spreads: October/November   (-0.21)   November/December   (-0.29).
  • Plains WTI Posting: 37.50   (0.00).
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