‘Ridiculous’ valuation
Eliades, the editor and publisher of Stock Market Cycles, considers himself more of a technician than a fundamental analyst. However, there’s one fundamental aspect of today’s stock market that concerns him: valuation.
He highlighted some major tech companies to illustrate his point.
“If you sold Nvidia, Microsoft and Apple, you could buy the complete economies of Great Britain, Germany and Italy. I mean, everything in that country that’s listed on their stock exchange, you could buy their complete economies with three stocks,” he said.
Tech companies have indeed benefited greatly from the stock market rally in recent years and now command enormous market capitalizations. Nvidia’s market cap now stands at $2.55 trillion, Microsoft’s at $3.14 trillion, and Apple’s at $3.35 trillion.
Eliades makes an interesting point. The total market capitalizations of the main stock exchanges in the three European countries he mentions are comparable to those numbers. As of 2023, Germany’s market cap stood at $2.183 trillion, while Italy’s was €704.998 billion (US$762.26 billion). And in the U.K., as of June, the market cap was $3.035 trillion.
“I'm sorry, that is ridiculous, that kind of overvaluation, especially in terms of technology, is just incredible,” Eliades remarked. “Look. Nvidia is a fabulous company. AI is going to provide a lot of help for a lot of companies. But when you think you can sell one stock and buy the complete economy of a large European country, you’re smoking a lot of stuff.”
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Read MoreSeeking safety
Given Eliades’ projection of a substantial decline in stocks, one might wonder where to find safety during the potential downturn.
His answer is simple: U.S. Treasury bills.
“If you want to be real conservative, of course, you buy T-bills,” he stated.
T-bills are short-term debt securities issued by the U.S. Department of the Treasury, with maturities of one year or less.
Eliades highlighted the evolving returns of this asset class over the years.
“They’re finally giving you some kind of return,” he said. “Think of the time between 2000 and just three or four years ago, or a year or two ago, you were lucky if you got 1% with T-bills. You're getting over 5% with them now.”
The yield on T-bills has indeed become more attractive, especially after the U.S. Federal Reserve started raising interest rates in March 2022. As of July 31, the yield on 3-month T-bills was 5.29%, 5.10% on 6-month T-bills, and 4.77% on 1-year T-bills.
Eliades added that while T-bill yields are better than before, they might not appeal to investors accustomed to astronomical returns in the tech space. He also warns that those extraordinary returns won’t continue forever.
“The people that brought Nvidia a year or so ago are going to say, ‘Who’s interested in 5% man, I’m looking for 100% a year,’ and they got it, and they’re so happy that they think it’s going to continue ad infinitum. It’s not going to happen. It never has before, and it won’t this time around,” he cautioned.
Nvidia shares have delivered triple-digit returns — skyrocketing 239% in 2023. In 2024, they’re up another 137%.
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