40% of Russell 2000 companies are unprofitable but their stocks are outperforming – and ‘the bubble may persist’, analyst says

However, on Wall Street, analysts are increasingly wondering whether technology stocks are in a bubble, and one important statistic continues to emerge: About 40% of companies included in the Russell 2000 index small They have no earnings or negative earningsaccording to Apollo Management chief economist Torsten Slok. “There is something wonderful happening in the stock market,” he said in his blog. “In recent months, the stock prices of companies with negative earnings have outperformed the stock prices of companies with positive earnings.”

Most of those unprofitable companies are technology companies, he said luck.

I have also noticed this strangeness before Morgan Stanley Chief Investment Officer Lisa Shalit. “More than a third of the Russell 2000 remains unprofitable… (and) small companies’ cost of capital is much higher than their return on assets,” she said in her latest weekly note.

Savita Subramanian and her colleagues Bank of America We are also concerned. They said stocks were “foaming to bubbly” in a recent note because the S&P 500 is now “richer” than it was in the year of the dot-com crash in 2000 on nine of 20 metrics they use to gauge whether stocks are in bubble territory.

“Of the 20 valuation metrics we regularly track, S&P 500 market capitalization to GDP, price to book value, price to operating cash flow, and enterprise value to sales all set new highs,” they said. “The index outperforms the March 2000 benchmarks on five other metrics: GAAP price per share earnings, average P/E, EV/EBITDA, S&P vs. WTI, and S&P vs. Russell 2000.”

However, context is important, they said: “Historical comparisons are an issue, as today’s S&P is higher quality, asset light, less leveraged, etc. But risks are increasing and the S&P 500’s minimum valuation is likely to be below today’s levels.”

Will technology stocks collapse?

Not if, as expected, the US Federal Reserve continues to provide new cash at a lower cost through its interest rate reduction programme. This is likely to lead to increased capital spending in technology, especially as deal-making in the AI ​​sector remains fierce. (It’s worth asking questions about the quality of these dealmaking: As the Wall Street Journal noted today, AI revenues do not exceed AI capital expenditures.)

“Our forecast for US GDP growth of 2.3% for 2026 significantly exceeds the consensus estimate of 1.7%,” Ben May of Oxford Economics said in a research note. “However, we assume that investment in digital technology as a share of GDP will not increase further. If investment in digital technology increases, US GDP growth could be double “Almost consensus forecasts and far exceeds growth rates in other advanced economies.” He believes that if technology capital expenditures continue to grow, US GDP could reach 3% next year.

But that doesn’t mean the stock market is celebrating like it was in 1999, he wrote. “Because of major structural shifts over the past three and a half decades, the recent surge in technology investment began at a much higher point than in the early 1990s. As a result, there is no clear reason why exceeding the peak of the late 1990s would indicate that investment in AI is in a bubble. And even if it is, the bubble could persist.” In inflation.

Here’s a quick snapshot of the markets before the opening bell in New York this morning:

• Standard & Poor’s 500 futures It decreased marginally this morning. The index closed up by 1.07% in its last session.
• Stokes Europe 600 It was steady in early trading.
• FTSE 100 index in the United Kingdom It rose 0.22% in early trading.
• Japan’s Nikkei 225 It rose by 0.27%.
• China CSI 300 It rose by 1.53%.
• South Korea Cosby It rose by 0.24%.
• India stylish 50’s It rose by 0.098% before the end of the session.
• Bitcoin It dropped to $108,000.