06/12/17

Small Caps Are Now More Expensive Than At The Peak Of The Tech Bubble



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Small Caps Are Now More Expensive Than At The Peak Of The Tech Bubble
// Silver For The People

zerohedge.com / by Tyler Durden / Dec 5, 2017 12:21 PM

Everyone knows that tech stocks are – or at least until investors realized that tax reform is a fiasco for the tech sector, were – the darlings of the market, resulting in the biggest concentration of hedge fund holders with a record number of HFs holding the 5 FAANG stocks; at the same time far fewer are aware that while the tech space trades at less than 50% of its peak "dot com" valuations, it is the small and mid caps that have been the best performing, not to mention most overvalued sectors in recent years.

First, looking at midcaps, an analysis by BofA's Dan Suziki reveals that despite the small-cap rally in late-November – as Trump tax reform gained momentum – it was the mid-caps that posted the best retums and the most multiple expansion for the month. All size segments saw their valuations expand across all five of the valuation metrics the bank tracks, marking the third consecutive month that the forward P/E rose across small, mid and large. Which is ironic considering the recurring, and wrong, calls that record stock prices are the result of earnings growth and not PE expansion.

Looking at valuation, BofA notes that both small and mid-caps both trade at the 99th percentile of their historical valuation range since 1979 vs. the 89th percentile for large caps.

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