Here is an excerpt from ARK Invest’s recent blog post: Innovation Stocks Are Not in A Bubble: We Believe They Are in Deep Value Territory. You should read also the rest of the article if like us you wonder why the market is so high and yet your investments in innovation stocks are so low and when deflation from technological innovation will start to beat back money printing/supply chain inflation:
OTHER MARKETS ARE NOT CORROBORATING FEARS OF INFLATION
Perhaps oddly, we have been encouraged this year by talk of a “bubble” in the public equity markets as valuations associated with disruptive innovation have collapsed. Why?…because other markets are not corroborating the fear that inflation is here to stay. Broad-based public market indexes, for example, are near record highs, their valuations at levels not seen since the tech and telecom bubble. In the early eighties, as inflation ravaged the US economy, the trailing twelve-month price-earnings (PE) ratio of the S&P 500 collapsed to a low of 6.8x, roughly a quarter of the level in place today.[6] Which market has it wrong: stocks associated with disruptive innovation or broad-based public equity indexes? Likewise, private equity market valuations are near record highs thanks to successive up-rounds.[7] The latest example, Nubank, started this year with a funding round at a $25 billion valuation and went public this month 60% higher at more than $40 billion. Meanwhile, shares of Mercadolibre, a well-managed, competitive e-commerce and fintech stock growing at nearly the same rate, have been cut in half.[8] Finally, the bond market seems to be warning the Fed not to tighten. Since February, the yield curve as measured by the difference between the yields on the 10-year Treasury bond and the 2-year Treasury note has flattened from 159 basis points to 80 basis points,[9] pointing to the rising probability of recession, lower inflation, or both during the next year.
In our view, the wall of worry built on the back of high multiple stocks bodes well for equities in the innovation space. The strongest bull markets do climb a wall of worry, a fact that those making comparisons to the tech and telecom bubble seem to forget. No wall of worry existed or tested the equity market in 1999. This time around, the wall of worry has scaled to enormous heights.
