Date: August 21, 2020

Price Action Like the Dotcom Era

A quick update as we have seen so much more of the same this week, but even more exaggerated. The NASDAQ 100 and the Fab Five plus Nvidia have powered ahead without taking the vast majority of stocks with them. The price action looks like late 1999 and early 2000 with the index scoring new high after new high with more stocks down than up and the amount of shares trading in stocks going down swamping those in stocks going up. This is not the healthiest of environments, but price is always the final arbiter.

The Fab Five+ scare me, even though we own some of them along with the index. At some point they will correct very hard and very quickly. When I hear pundits call these stocks “defensive”, I sigh and hearken back to the Dotcom era when it was supposedly a new paradigm. Yeah, that ended well. Anyone opining that the stock market is totally healthy when less than a dozen stocks are holding up the major indices and masking some underlying weakness are simply ignoring history. But remember, markets can stay irrational longer than any of us can stay solvent.

Market action in Tesla and Apple based on the stock splits is the epitome of greed. Splits do not add value, just the share count. But traders get all Jim Cramered up because they can buy more shares. The Apple split is going hurt the Dow Industrials because that index is price weighted, meaning Apple moving 1% in a day will have 25% the impact because the price will be cut for the split. Apple has been a big driver in the Dow with its lofty price. That will no longer be the case. Maybe they will add Amazon soon…


Paul Schatz, President, Heritage Capital