"After Mid-August, a Correction Phase Expected in US Nasdaq"

"Companies with Market Cap Over Sales Surge... Similar to Dotcom Bubble"
Investment Needed in Tech Stocks Rather Than COVID-19 Impacted Stocks

[Asia Economy Reporter Minwoo Lee] The US Nasdaq market is showing a rise comparable to the 'dot-com bubble' that occurred between 1995 and 2000. However, since the current investment environment is not as favorable as during the dot-com bubble period due to the ongoing COVID-19 pandemic, forecasts suggest that a correction phase will approach after mid-month.

Surpassing the Dot-com Bubble Rise Period... Additional Gains Uncertain Amid Low Economic Growth

On the 15th, Daishin Securities predicted that the Nasdaq index would enter a correction phase after reaching a peak in mid-month. The reason for the correction was primarily attributed to the similar duration of the rise compared to the dot-com bubble.

Previously, the Nasdaq index recorded a yearly low of 6860.67 on March 23 and rose approximately 60.6% to 11019.30 as of the 14th (local time). This is the second-largest increase following the dot-com bubble period, which saw about an 88% rise over roughly five months (143 days) from October 19, 1999, to March 10, 2000. While the return alone might suggest potential for further gains, considering the number of rising days, the current rise has already surpassed that of the dot-com bubble period.

There is also a fundamental difference in market conditions. First, the current investment environment, where COVID-19 is still rampant, is not as favorable as during the dot-com bubble period. Namjoong Moon, a researcher at Daishin Securities, explained, "Unlike the dot-com bubble, which gave birth to new industries with the advent of the internet, the changes in daily life brought about by the pandemic?centered on non-face-to-face interactions and the convergence of existing industries?are distinctly different. While stock price increases were somewhat tolerated during economic booms, the current US economy is expected to contract by about -8%, making the Nasdaq's rise comparable to the dot-com bubble period near its peak," he said.

Increase in Companies with Overvalued Market Capitalization Relative to Sales

He emphasized that to determine the start of a stock price correction, attention should be paid to the emergence of companies whose market capitalization has grown excessively relative to their sales. During the dot-com bubble, as the number of companies with market caps exceeding ten times their sales increased, doubts arose about the sustainability of the tech sector's rise, eventually leading to an index correction. After reaching the peak, the decline was -34.2%, which is about 39.0% of the dot-com bubble's peak rise of 87.8%.

Similar companies have recently appeared in the stock market. Tesla, the US electric vehicle manufacturer, is a representative example. Tesla's sales for this year are expected to be $25.7 billion (approximately 30.5187 trillion KRW). Based on the closing price of $1650.71 on the 14th (local time), its market capitalization is about $307.6 billion, nearly 12 times the expected annual sales. Researcher Moon said, "While there were 33 such companies during the dot-com bubble, the current COVID-19 situation has seen this number rise to 62. The current Nasdaq index is expected to form a peak after August 13, when it reaches the number of rising days of the dot-com bubble period, and if it begins to decline reflecting the dot-com bubble's decline rate (-34.2%) and decline duration (25 trading days), it is highly likely to form a bottom before mid-September," he forecasted.

Invest in Tech Stocks Rather Than COVID-19 Affected Stocks Before Mid-September

Daishin Securities suggested aggressively increasing exposure when the Nasdaq index forms a bottom before mid-September. They analyzed that the fourth quarter would create a favorable investment environment for the stock market in terms of policy momentum and fundamental improvements. The November presidential election could be the biggest factor. Regardless of who wins, momentum is expected to act on the stock market based on expectations for the next administration's policies. Positive trends are also anticipated in economic indicators and corporate profits. The US economy in the second half is expected to reduce its contraction from -6.5% year-over-year growth in the third quarter to -5.0% in the fourth quarter. The S&P 500 index's earnings per share (EPS) growth rate is also estimated to narrow its decline from -22.6% year-over-year in the third quarter to -13.4% in the fourth quarter.

Amid this trend, there is also analysis that the existing leading stock market phase will reappear. Researcher Moon said, "As positive results for COVID-19 vaccines currently in clinical trials increase, rebounds in sectors affected by COVID-19 will become more active. However, considering investment performance in terms of time value, the pandemic has normalized non-face-to-face interactions and penetrated social organizations, establishing user experiences. Investing in this change means that growth stock investments centered on existing tech stocks will be a wise way to proactively respond to social changes," he predicted.

This content was produced with the assistance of AI translation services.