It’s all looking a bit nervy.
Nvidia is a big part of the problem, they say. Its market cap is huge. Too huge?
This chart shows just how weighted toward the top five stocks the market currently is:
The valuation of those stocks is so high that the U.S. market now dwarfs foreign markets in a way that it historically did not. “The U.S. is now nearly five times larger than China (in second) and around 20 times larger than Europe’s larger markets,” they said.
“This doesn’t automatically mean it’s a bubble, but we appear to be in uncharted territory, and likely means performance heavily depends on a handful of companies,” the Deutsche team said.
“We should note that, of [developed country] equity markets, only the U.S. could be considered a bubble risk. Other G7 equity markets currently have historically average valuations vs. earnings.”
What could possibly go wrong?
The labor market for one thing. The U.S. will publish a new job openings report today (the so-called JOLTS) and a new nonfarm payrolls number on Friday.
EY-Parthenon Chief Economist Gregory Daco forecasted in a note yesterday that he expects Friday’s employment number to be weak: “August’s employment report is likely to confirm that a marked slowdown in labor market conditions is underway, as business leaders—grappling with softer final demand, higher costs and interest rates, and elevated uncertainty—continue to restrain hiring.
“We anticipate another step down in job growth, with nonfarm payrolls expected to rise by just 40,000 in August, following a 73,000 increase in July. The unemployment rate is projected to edge higher to 4.3%—its highest level since October 2021.”
Buckle up. It’s going to be a bumpy ride. (Or to put it another way, the VIX fear index—which measures volatility—has been elevated in recent days and was up 5.46% yesterday.)
Here’s a snapshot of the markets globally this morning:
