![]() ![]() ![]() “In March 2000, the market-cap weighting of the Tech sector was 34% compared to only a 7.9% weight for total economic activity. Fundamentals > froth.Ĭomparing the market cap weighting of the S&P 500 tech index with its economic weighting, or the proportion of nominal GDP that comes from tech sector sales, provides further evidence that technology stocks, while far from cheap, may not be too overpriced. That compares, on a relative basis, with a 5 per cent premium during the 1990s boom. The latter shows how in recent years stocks comprising the S&P 500 tech index have generated a ROE between 15 per cent and 20 per cent higher than that of the broad-based S&P 500. Tech is also far more productive today, Paulsen argues, whether measured in terms of relative sales per employee (chart 4) or relative return on investment (chart 5). (NGL, we love it when analysts drop an exclamation mark in). The relative price of the S&P 600 Small-Cap Technology index rose to a high just slightly below 1.0x in the current cycle compared to that of 1.7x during the enthusiastic bubble of the late 1990s! “Small-cap tech never fully engaged in the contemporary tech run,” Paulsen says. Today, of course, a handful of mega-sized companies dominate. Tech stocks, it turns out, are actually relatively cheap in historical terms.Įxhibit number two is the broad-based nature of the bull run tech stocks embarked on in the late 90s. But they remain roughly 60 per cent above where they were back in early 2000.
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