For a clear lens into how investors see the Covid crisis reordering the economy, consider how they are dividing the stock market’s bounty during what is fast becoming the rally’s most powerful stretch.
A five-month surge in the Nasdaq 100 just pushed one valuation measure — the index’s price relative to the combined sales of its companies — above 5 times, a level comparable to the dot-com bubble. On the other end of the luck spectrum are small caps, where pessimism about a broad-based economic rebound has held the ratio to 1/5th that, one of the widest gaps ever.
The rally’s been called a lot of things. Euphoria bred by stimulus, day-trader sentiment overtaking sense, falling discount rates boosting the net present value of future earnings. But its distinguishing feature has been constant: investors upping bets that the economy’s rewards will fall decisively on giant automation-enabled companies with fewer workers and hoards of cash — while their smaller brethren fade. Read more…..
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