Redrick Terry:
It is now time for 4 Your Money. We’re joined once again by David Nelson, CEO of NelsonCorp Wealth Management. David, welcome back.
David Nelson:
Thank you. Appreciate it, Redrick.
Redrick Terry:
Of course. So, before this year’s turmoil in financial markets, we’ve talked about the influence that the biggest of the big growth stocks have on the overall stock market. These same names still seem to dominate headlines. Has anything changed there?
David Nelson:
So, we’ve been chatting about this for quite some time, and the answer is no. The big have gotten bigger actually. What’s interesting with this go around is generally speaking, when you have a financial event, crises like we just went through, is oftentimes there’s a shift as far as in the winners and the losers, as far as during that event. But this particular one it hasn’t shifted. It’s actually been amplified as far as what’s taken place. So, I brought along a chart. The first chart that I brought is going to be a nice visual as far as to explain to people and visually show them as far as just the month of July what’s taking place, the significance of this. So, what we see here is that the top is showing the Nasdaq composite, which is 2,500 stocks.
David Nelson:
What we’re illustrating here is that the market is at a really significant move. It’s up 600 points just in the month of July by itself. And if you look at the far right, you see that line going up, we’ve got a circle on the top. What that’s illustrating is a 1.5% move the last day of July. Now, on the bottom what we have is we’re illustrating there in red that circle, is that actually we had over a thousand stocks more than went up, went down, and yet the index was up 1 1/2%, just shocking as far as to see something like that. Very rare event.
Redrick Terry:
In fact, when you talk about that and other dynamics, there are comparisons being made to the tech bubble of the late 1990s. Does the current environment feel like that to you?
David Nelson:
Well, truth be told, the late ’90s and today there’s a lot in common. Going back to ’86 with the second slide that we brought along, we’re looking at this, and it’s illustrating as far as from ’86. The blue… Look at the top right now, folks. The blue is we’re illustrating the Nasdaq, and it’s going up at our rapid pace, up until the bubble took place. So, we have the boom and the bust that’s taking place here. The bubble in the middle of the chart, it shows the blue line dropping pretty dramatically. And then we continue on as far as going to the far, right.
David Nelson:
So what we’re trying to illustrate on the bottom… So, that’s illustrating as far as what the market actually did. The bottom, I think is even more important to try to drive home the point with folks. Anything above that yellow line, we’re trying to illustrate, is a pretty extreme situation that’s taking place. A lot of stocks that are exploding on the upside, and the bottom line is that the market is following through with that. Generally speaking, when you see something this severe in those extreme events on the far right side above the yellow, that’s typically telling you that we’re getting close as far as to a top.
Redrick Terry:
So, factoring all of that in, what does it mean for people’s investments?
David Nelson:
Well, I think we’re overdone near term, which is a fancy way of saying that the likelihood of things pulling back are pretty significant at this point. I’m not saying disaster ahead, but certainly there’s a difference. The comparison, as far as going back to the ’90s and today, the biggest difference is back then the companies weren’t making money. Today they’re making lots of money. These big tech companies are making lots of money. But don’t forget this, and I’ll wrap it up with this. The market is five times, the Nasdaq is five times higher today than it was just 10 years ago.
Redrick Terry:
David Nelson, great information as always. Thanks for joining us this morning.
David Nelson:
Thank you.
Redrick Terry:
And if you missed any part of our discussion, we will make it available to you on our website. That’s OurQuadCities.com.