With Thursday’s assurance that Yellen is all about the stimulus, all the time, the bulls snorted and ran through Wall Street with nostrils aflare, pushing the S&P 500 and Dow Jones Industrials Average to new all-time highs, and even somehow cranking the Nasdaq 100 up nine points — despite the fact that super-sized Nasdaq 100 component Cisco Systems (CSCO) suffered its worst one-day loss since 2011, down 11%.
The fact that the Nasdaq 100 could rocket that much higher while dragged down by one of its largest contributors says a lot about the strength of everything else. It was a blazing day for Nasdaq’s biggest, like video game maker Activision Blizzard (ATVI), retailer Amazon (AMZN), biotech Amgen (AMGN), personal electronics maker Apple (AAPL) and design software maker Autodesk (ADSK) — and that’s just the As.
I know this is going to sound ridiculous, but I’ll say it anyway. With the Fed promoting an easy-money policy, and inflation very low, allowing price/earnings multiples to expand, Nasdaq stocks can advance even if earnings growth is anemic. Remember that broad-market price/earnings multiples are essentially a result of the formula “GDP growth minus inflation,” so if growth is weak but inflation is even weaker, then P/Es expand, lifting stock prices.
If you will look at the chart above, you should note that the Nasdaq rose a lot more in the fourth quarter of 1999 under much more adverse circumstances. In that case, you had stocks that were already extremely overvalued becoming even more overvalued, and you had the threat of the Y2K bug in 2000, which many astute observers swore would cause havoc to the world financial system.
Just looking at a past high is just a thing we humans do because we like reference points to get our bearings. It doesn’t really matter, except that there is still a lot of lingering anger and defeat among the public who bought at that last high and have been waiting to get out of their positions for 13 years. So the real question now is whether those individual stocks can eclipse their old highs due to changes in circumstances and a rising perception of hope. Here I have charted out a few of the companies whose shares need to answer that challenge: Microsoft (MSFT), Oracle (ORCL) and Amazon.
These stocks, and ones like them, are ripe to buy opportunistically over the next week. People may be surprised at how briskly they can move once the hedge fund community senses the potential for a “dash for cash” in the closing six weeks of the year, and a chance to squeeze short-sellers.
Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow Jon Markman at Google+.