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The US stock market appears dramatically different to me now than it did just 12 months ago. Equity issuance by US-listed firms has gone up since then, while cash returned to shareholders has gone down. Based on net cash flow, I believe the market is starting to look overvalued and even bears some resemblance to the tech-stock bubble of 1999 – 2000, with stocks offering little reward potential but plenty of risk. As of this writing, I would suggest that US equity investors consider overweighting defensive, cash-producing stocks.

Is it 2000 all over again?

For 10 years following the 2008 global financial crisis, the US equity market was more or less a “cash cow,” reliably returning cash to shareholders via dividends and share repurchases. Broadly speaking, the market’s annual cash yield was around 3%, with a dividend yield of 2% and net repurchases of 1%. That changed in recent months, with net cash flow turning…

MARKETS
Owen Lamont
Owen Lamont
PhD
Associate Director of Quantitative Investment Group Multi-Asset Research
Boston

As investors scrutinize sky-high prices in some areas of today’s equity market, comparisons with the dot-com bubble of the late 1990s are common. Having lived through both periods, I see some important differences between the two environments, as well as some potential lessons from the dot-com sell-off.

The dot-com bubble was a twofer

Obviously, the heat and light of the bubble we saw in 1999 was the internet sector, with established players and startups trading at crazy valuations that often were not linked to earnings, cash flow, or even revenue. A tidal wave of oversubscribed IPOs was a big part of the picture as well. However, I would argue that the broader market was…

MARKETS
Adam Berger
Adam Berger
CFA
Multi-Asset Strategist
Boston
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