What is the future of the Nasdaq after last week correction?
Many of the high-flying companies that did so well in 2021 (and that have sharply reversed course thus far in 2022) were the favorites of the Robinhood crowd. The popular press often suggests that this new class of young investors who have entered the market should positively affect stocks’ long-term trajectory, bringing to mind similar stories written about day traders in the years prior to the dotcom collapse.
However, when the bubble eventually burst, those day traders sustained such large losses that they exited the market completely and, in many cases, did not return for many years. With a good deal of the high-flyers having already lost 50% or more of their value, we’ll be interested to see whether this new class of investor will leave the market in a similar fashion.
As of January 20, 2021, the S&P 500 was selling for 19.9x earnings (fwd.) versus 19.2x at its February 19, 2020, pre-COVID-19 peak and 13.3x at its March 23, 2020, pandemic low. Since the March 23 bottom, the S&P 500 has gained ~100%. By most traditional valuation measures, the S&P 500 is historically overvalued, yet value shares have not been this cheap relative to growth shares since the dotcom bubble (although they are not particularly cheap compared with their own long-term average).
We continue to believe that value will outperform growth in the medium to long-term, not only on a relative basis, but also—and much more important—by producing a positive absolute return.
Jonathan Boyar, CEO at Boyar Value Group