NDX: A Lost Decade Awaits As Bubble Rivals Dot Com Era

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About: NASDAQ 100-Index (NDX)
by: Stuart Allsopp
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Stuart Allsopp
Long/short equity, research analyst, macro, portfolio strategy
Summary

While Nasdaq valuations remain below the dot com bubble peak, return prospects are almost as bad as they were back then due to the much slower potential for earnings growth.

The parabolic rise in that tech stocks will come at the expense of future returns as valuations mean revert lower in line with historical trends.

The explosion in tech sector market share over the past two decades has created the social and economic conditions for a profound drop in profit growth over the coming years.

The upshot is that even if we get continued rapid earnings and cash flow growth over the next decade, we are still likely to see only ~2% annual returns, whereas if growth slows to the pace of the overall economy we could see -6% annual returns.

The Nasdaq 100 index (NDX) has continued to defy warning signs in the form of declining market breadth and deteriorating growth prospects, with speculative sentiment driving the index back to its most extreme