Striking chart, isn’t it? What does it tell us. First, the Nasdaq drove the $7 trillion rise in the U.S. between 1999 and 2000. When the tech bubble burst, $7 trillion in wealth was wiped out.
Though not yet at new highs, it’s interesting to speculate on what caused the recovery in the U.S. market, particulary the spurt that drove it off its lows of around 7,000 to nearly 11,000 in 2003-2004. This was synchronous wit the rise in commodity prices. But can the increase in the share price of commodity stocks account for the boom? Surely it wasn’t the recovery of Nasdaq stocks. A lot of the gain has come from the financial sector.
In any event, where does the market go after making a new all-time high? And does it even matter that “the market” makes an all-time high when the composition of growth is varied and different this time around?
Perhaps the more useful comparison is between the total market cap total GDP. The thinking behind this comparison is that the value of publicly traded stocks–a claim in future earnings–can’t exceed the aggregate value of a nation’s goods and services. Yet today’s market-cap to GDP ratio of over 140%, though not at an all-time high, is certainly an extreme.
Translation: it doesn’t matter what’s driving the market right now…it’s gone well-beyond any relation to fundamentals or realistically valued claims of future corporate profits. Those claims themselves have become ludicrous and fanciful.