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Déjà Vu: Extremely Valued Tech Companies Propping Up Stock Markets

Danielle Park, CFA profile picture
Danielle Park, CFA


  • Tech stocks make up just 8.8% of the Canadian stock market today.
  • On a valuation basis, Canada's S&P/TSX Info Tech Index is now trading at an average price to earnings multiple of well over 50.
  • Extreme overconfidence in the tech sector was punished severely in past cycles.

In the spring of 2000, as now, there was a widespread belief (we remember well, we were there) that the leading tech companies would be impervious to recessionary strife in their customers, the wider economy and financial markets. See The NASDAQ's summer 2000 bounce might contain a cautionary lesson:

"Along similar lines, the current environment carries the risk that - with COVID-19 likely to continue disrupting consumer and business activities in the coming months - the financial woes of companies in industries such as travel, energy, auto and hospitality are going to weigh on many of the tech companies directly or indirectly relying on them. And there's also a real risk that consumer spending in fields such as e-commerce and tech/electronics hardware, which is currently benefiting from stimulus payments and much lower discretionary spending on things such as travel and dining/entertainment, softens in the coming months."

In the recent cycle, we can see (lower left panel in blue) that U.S. stocks traded in lockstep with international markets between 2007 and 2012 before the FAAANM stocks - Facebook (FB), Apple (AAPL), Alphabet (GOOG) (GOOGL), Amazon (AMZN), Netflix (NFLX) and Microsoft (MSFT) - exploded away from the rest, taking, not just the NASDAQ, but the S&P 500 index along for a wildly volatile ride since.

In the right panel below, we see the price change (in blue) of these largest six technology companies (FAAANM) from 2015 to now, compared with the flat change in the other 494 companies that make up the index (in red) and negative returns of international markets, excluding the U.S. (in yellow).

Tech stocks make up just 8.8% of the Canadian stock market today, but similar price action is evident in the chart below of three largest TSX listed tech companies (Kinaxis - in black, Real Matters

This article was written by

Danielle Park, CFA profile picture
Portfolio Manager, financial analyst, attorney, finance author, a regular guest on North American media. Danielle Park is the author of the best selling myth-busting book “Juggling Dynamite: An insider’s wisdom on money management, markets and wealth that lasts,” as well as a popular daily financial blog:www.jugglingdynamite.com Danielle worked as an attorney until 1997 when she was recruited to work for an international securities firm. A Chartered Financial Analyst (CFA), she now helps to manage millions for some of Canada's wealthiest families as a Portfolio Manager and analyst at the independent investment counsel firm she co-founded Venable Park Investment Counsel Inc. www.venablepark.com. For two decades, Danielle has been writing, speaking and educating industry professionals and investors on the risks and realities of investment behaviors. A member of the internationally recognized CFA Institute, Toronto Society of Financial Analysts, and the Law Society of Upper Canada. Danielle is also an avid health and fitness buff.

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Comments (14)

funny money monkey profile picture
Perfectly straightforward and insightful. Thanks.
Diesel profile picture
This is not really a counter-trend rally. This is a full blown bull market that is barely getting started.
Another fine article. However, I am afraid that, yet again, the information will fall on deaf ears. Keep up the good work, Danielle.
Chris Valley profile picture
In 1999, the internet was primitive. It was probably the first year in history that most people had the internet or email.

It was 20 years ago. Society had no computer skills, compared to today's 9 year olds.

1999 Tech stocks--even the SOLID ones--had NO CASH. They had NO PROFITS. And some had no revenue!???

2020 is a much different stock market. The only thing that's the same is the SKI SLOPE, baby!
Diesel profile picture
True. In 1999, many "tech companies" didn't even have a business plan or any idea about how they can generate revenues, let alone having profits or revenues but they were still valued in billions just because they had a fancy website. Now, tech companies have strong revenue growth, tons of cash and nice profitability on their side.
Chris Valley profile picture
1999 was a century ago, compared to the next revolution of communication, which was the Android/Apple Mobile Communication Hegemony.

10 years ago. I invested in Apple. It was PRIOR to Iphones existing in China.

Now, they have 5g and...6, 7, 8, 9, G in the works.

The world is different in all facets. Compared to the 20th century.

Welcome to the 21st Century, everybody! Don't sleep on 20 years.
chill, Fed got your back yo.
metameta profile picture
looking at previous articles... so bearish this one is.

good points but so bearish.
Wiekierc profile picture

If the shoe fits...
1.Counter trend rally, really? Which counter trend rally in the past took the index to LifeTime highs??
2.look at cash flows and actual cash with largest nasdaq companies today vs 2000..no comparison.
3. Looking at past 10,15,20 yrs performance, there is a higher risk of investors dying natual death waiting for the emerging /foreign mkts to outperform S&P. If you recommended clients to go heavy international weighting, well.. Feel sorry for them.
Exactly, and what counter trend rally in the past had the fed buying $75 billion a day every day for a month? This time it's different. Because this time we have the government not allowing a free market. This time we have socialism for the rich.
Audiosticks451 profile picture
The canary is breathin' heavy.
anomaly1 profile picture
sell it all
astro24102 profile picture
Agree 100%, but right now I’m keeping a close eye on the trend......sooner or later this trend will change.
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