"Something remarkable is going on in the equity market. Stock prices of companies with negative earnings have in recent months outperformed stock prices of companies with positive earnings,"
"More than a third of the Russell 2000 remains unprofitable ... [and] small-cap companies' cost of capital is well above their return on assets,"
"They said stocks were "frothy to bubbly" in a recent note because the S&P 500 is now "richer" than it was in the year of the 2000 dotcom bust on nine of 20 metrics they use to gauge whether stocks are in bubble territory."
Nasdaq 100 futures are flat premarket after the Nasdaq rose 1.3% yesterday, nearing its record high, while the S&P 500 rose 1%. The Nasdaq is up 20% year-to-date, versus the S&P's 14.5%. About 40% of companies in the Russell 2000 have no or negative earnings, and most of those firms are in the tech sector. Stock prices of unprofitable companies have recently outperformed profitable companies. Small-cap cost of capital exceeds returns on assets. Multiple valuation metrics show the S&P is richer on several measures compared with 2000, and rising AI capex could push valuations even higher.
Read at Fortune
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