The recent passage in the Congress of the new $1.9bn “Biden” fiscal package has caused a “frenzy” among investors everywhere, especially those operating on the US stock market.
Estimates vary with each financial company trying to create the right momentum for its client-investors so that funds invested during the pandemic in shares of technology and software companies respectively leave and invest in shares of companies operating in traditional industries before the pandemic and if the pandemic ends and the development phase begins.
by Trust Economics – https://trusteconomics.eu
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It is therefore understandable that there should be a “race” to invest capital in shares in banks, construction, finance, industries, and other cyclical type companies.
Last week we saw a fall in the NASDAQ technology stock index and the rise of the S&P 500 stock index (which also includes in its list technology and software companies) transferring these funds and as expectations of global demand growth in both the US and Europe and Southeast Asia increased.
But also, as we have mentioned in our previous analyses (please read the analysis entitled «Increase in Bond Yields: Sign of Expected Growth or Cost Inflation») we believe that the expectation of a strong recovery in economies will sooner or later create the corresponding artificial inflationary pressures that will force central bank administrations in the first place to discontinue any monetary policy (QE) applied to date and in the second time to increase their lending rates.
In this case the size of the recovery will be drastically reduced while many companies operating in traditional industries that have accumulated debts during the pandemic and operate with high financial gearing and high wage costs will be the first to go bankrupt creating great turmoil and volatile in the economy and stock markets, respectively.
The increase (decrease) in yields (prices) of government bonds shows us that yields on these mobile assets will directly compete with the returns resulting from the dividends of the shares of technology and software companies. Essentially the index (P/E) of technology and software companies is overvalued and will not be valid.
