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Stocks Could Rise 30% If Equity Allocations Return To 1999 Levels: JPMorgan
How far might stocks rally if investor equity allocations rose to levels consistent with those observed on the eve of the financial crisis or, even more provocative, if global investors' stock allocation reached the dot-com-era peak?
That's another way of approaching the more generalized question market participants find themselves pondering on a daily basis in 2024. Namely: Where's the top in the event the current US equity melt-up morphs into a dot-com-esque bonanza?
In a note dated February
The number of publicly traded companies, i.e. stocks, has declined about a third since 1999 (from about 6,000 to about 4,000). Why – fewer IPOs, deeper pocketed venture capital and private equity, more M&A, maybe more consolidation (speculating). Granted, most of the lost stocks (private companies that would once have been public) probably (more speculating) have small cap-like revenues, and since the entire Russell 2000 has about $5TR market cap, the total “missing” market cap is only like 10% of today’s total US market capitalization (stacking layers of speculating). But stock prices are determined by demand and supply, not price-to-sales, so if the money needing to be invested grows multiple-fold while the universe of investable assets shrinks by a third, that’s got to drive valuations up and earnings yield down, and since asset classes compete for money, maybe that drives bond yields and real estate cap rates and other asset’s yields down (speculating wildly now) and Benjamin Graham spins faster in his grave (not speculating AT ALL now). See, it’s all the PE/VC and I-bankers’ fault after all.
Of course stocks will rise another 30%- it is just a question of over what time period (haha)!