18 Nov 18th November 2024
Weekly Index Movement
| S&P500 | -2.1% |
| Nasdaq | -3.4% |
| Aussie All Ords | -0.2% |
A week after the “Trump Bumb” and the markets reassessed conditions with a “Trump Slump”. The Nasdaq fell every single day last week which ended with markets reassessing future interest rate cuts.
With the election in the rearview mirror this week, investors shifted their focus back towards inflation, the Fed, and interest rates. Treasury bond yields have continued to push higher since the Fed’s first rate cut back in September, and the latest cut last week did little to stop it.
Fedspeak this week suggested less of a need to cut rates at the pace that may have been expected a couple months ago. I do find the way the market changes its view on interest rates comical. Expectations of cuts were far too high and ever since the Fed delivered the first cut, those expectations have moved back to a more realistic level. But this normalisation in expectations has put stock prices under pressure.
Below is a look at one-year price charts for the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ). After getting very overbought last week following Trump’s victory, equities sold off steadily this week. The S&P (SPY) has pulled back to support at its highs from mid-October, while the Nasdaq 100 (QQQ) has actually moved back below its prior all-time highs from July. As you can see in the chart, the market has essentially given back all of the gains since its initial gap higher last Wednesday morning following the election results on Tuesday night.
The Health Care sector has been under some pressure recently and has become very oversold following Trump’s nomination of RFK Jnr to head of Department for Health. RFK is seen as anti-big pharma and anti-vaccine.
There is opportunity here. The market is pricing in anti-pharma policies, but it is too early to know if this will be the case or not. Big Pharma has weathered all kinds of storms in the past and will do so again. Prices are beginning to look attractive in this sector.
Another area looking oversold is Gold. Now would be a good time to add if you want exposure.
Are US Stocks Overvalued
There are a few comments flying around in the media that US stocks are overvalued. These comments seem to focus on the fact that average PE ratios are close to prior all time highs.
Based on this graph you can see why the media is saying stocks are overvalued.
I say US stocks are not overvalued as this concept of comparing PE ratios to history is not valid. Companies today operate at much higher levels of efficiency and profitability to history.
To illustrate this, let’s look at the 3 largest names from 1995 and compare them to the 3 largest names now
There is a very good reason you would pay more for today’s leaders than the leaders of the past. They are simply much more profitable companies. As a result, PE ratios in 1995 should be a lot lower than today. The fact that PE ratios today are the same as 1995 means Big-Tech companies today are actually undervalued. The PE for a 48.8% margin business with an ROE of 69.2% should be a lot higher than the PE for a 9.4% business with a 22.25 ROE.
Bottom Line – Stocks are not overvalued so go out and buy some more.
And here is something you might want to consider if you are looking for something to buy.
CyberArk – CYBR
When Colonial Pipeline was hit by a devastating cyberattack in 2021, a single compromised password brought the largest fuel pipeline in the United States to its knees.
The company paid $4.4 million in ransom, but the real cost was far greater – thousands of gas stations ran dry, fuel prices spiked, and five states declared emergencies.
This wasn’t just another hack. It was a wake-up call that showcased why privileged access management (PAM) – the security of critical digital access points – has become as important as physical security for modern enterprises.
In this critical space, one company stands above all others: CyberArk (CYBR).
CYBR reported Q3 2024 earnings on Wednesday, and the stock was up on a top and bottom-line beat and a raised full-year guidance. The guys at Bespoke call this a Triple Play where the company exceeds on all metrics. And it isn’t the first time CYBR has done it. CYBR has done this for the last six consecutive announcements.
The market expected earnings of $0.46 per share. The company delivered $0.94 demolishing expectations. Subscription revenue now makes up 71% of total revenue, they signed 200 new customers last quarter, and their operating cash flow surged to $67 million from just $4 million a year ago.
Online Security is big business and CyberArk is capturing a growing portion of this, particularly in the Banking and Finance sector.
The stock is fairly expensive, trading on a PE of close to 100, which puts it in the Tesla growth expectation range, but being a smaller company it is much easier for them to hit this level of growth.
This Week
It will be a quiet week for both US and Australian markets. The big event will be NVidia announcing profits on Thursday. That will mark the end of earnings season and the market will go back to just looking at what interest rates are doing until the New Year.
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.