Hi Ruben

Thanks for your comment. I see where you are coming from. The parabolic movements of a bunch of stocks appear driven by option flows, speculation, FOMO, and momentum. In the long run, these things tend to correct, unless those companies live up to the high expectations toward future earnings currently priced in. Some retail investors unfortunately don't understand risk and how to manage it.

Low interest rates - now and for the foreseeable future - and low bond yields (implies cheap financing for firms burning cash to grow), means future profits are discounted less relative to current. Even profits pretty far out in the future.

Institutional investors and their algos reallocate toward growth companies whenever the FED loosens policy or reiterates commitment to long term expansionary monetary policy. This drives up valuations of many stocks. For many, the current valuations are probably warranted, although occasinal corrections are to be expected when prices rise at such a pace.

Exciting times ahead.

Regards, Asger

I’m an economist doing policy design and analysis. I write about the economy, taxation, innovation and growth, policy design, and financial markets.

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