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●the reversal of carry trades in overseas markets in early august was a relatively extreme "stress test", but the core contradiction lies in the "microstructure deterioration of global popular trade represented by japanese and us stocks"! mr. market tells you in words that "the microstructure of local markets around the world is relatively fragile now". in this article, we will focus on the key issues of us stocks.

●when the core asset bubbles of the u.s. stock market, the “nifty fifty” and the “dot-com bubble”, burst, the microstructure deteriorated significantly. arbitrageurs’ convergence trading of “core assets” caused the “microstructure deterioration” of the market—>when the belief in “core assets” began to waver and the relative profit advantage was difficult to maintain—>the ​​fragile microstructure of the market was often punctured—>the ​​stampede of positions induced a severe liquidity shock, forming a negative positive feedback—>the ​​“core asset bubble” burst. the concentration of u.s. stocks has reached a historical high in this round. whether the performance of the subsequent “tech leaders” can renew the “ai belief” is the key to whether the high concentration of u.s. stocks can be maintained.

● from the perspective of microstructure: this round is not the "extreme bubble" of the dot-com bubble in 2000. combining several major indicators to compare this round with the dot-com bubble in 2000: although most indicators have certain similarities, this round can be relatively optimistic. (1) the rise in the index level in this round is far less than that of the "dot-com bubble"; (2) the degree of differentiation between technology and non-technology valuations in this round is far less than that of the "dot-com bubble", which to a certain extent confirms that the differentiation between technology stocks and non-technology stocks in this round is driven by the profit advantages of technology stocks and non-technology stocks; (3) from the perspective of investor sentiment, the current market enthusiasm is significantly lower than that of the dot-com bubble.

● from the meso-level perspective: behind the bursting of the dot-com bubble in 2000, there was a significant slowdown in the industry trend. judging from the current data, the matching degree between the stock price and performance of ai in this round of us stocks is relatively good, but attention should be paid to the sustainability of subsequent ai performance. (1) the performance of us internet companies deteriorated in the late 1990s, and behind this was a clear downward turning point in the industry trend. the penetration rate of the internet industry fell sharply in the early 2000s, and the gradual shrinking of the incremental market space meant that the high growth rate of demand was unsustainable. in addition, the problem of overcapacity caused by the continuous investment expansion in the 1990s became prominent, and the capacity utilization rate declined. both the primary and secondary markets of the internet industry encountered a cold winter. (2) compared with the dot-com bubble around 2000, judging from the current data, the matching degree between the stock price and performance of ai in this round of us stocks is relatively good, but attention should be paid to the sustainability of subsequent ai performance. in 1999, the us technology stock bubble accelerated, which was manifested in the extreme split of the "stock price & performance" ratio between technology stocks and non-technology stocks, which laid the groundwork for the bubble to burst.

report content

introduction: compared with the dot-com bubble in 2000, how to measure this round of ai risks?

the reversal of carry trades in overseas markets in early august was a relatively extreme "stress test", but the core contradiction lies in the "microstructure deterioration of global popular trade represented by japanese and us stocks"! mr. market tells you in words that "the microstructure of local markets around the world is now very fragile". in this article, we will focus on the key issues of us stocks:

looking at the history of the u.s. stock market, the microstructure deteriorated significantly when the two core asset bubbles burst, the "nifty fifty" and the "dot-com bubble".

arbitrageurs' convergent trading of "core assets" causes the "microstructure deterioration" of the market - when the belief in "core assets" begins to waver and the relative profit advantage is difficult to maintain - this often punctures the fragile microstructure of the market - positions stampede induces severe liquidity shocks, forming negative positive feedback - the "core asset bubble" bursts.

the current round of u.s. stock concentration has reached a historical high. whether the subsequent performance of "technology leaders" can renew the "belief in ai" is the key to whether the high concentration of u.s. stocks can be maintained.

analyzing from the microstructure of the u.s. stock market, we use several major indicators to compare this round with the dot-com bubble in 2000: although most indicators have certain similarities, this round may not be an "extreme bubble", so we can be relatively optimistic.

(1) the current round of index-level increases is far less than the “dot-com bubble”;

(2) the degree of differentiation between technology stocks and non-technology stocks in this round of valuation is far less than that in the “dot-com bubble”, which to a certain extent proves that the differentiation between technology stocks and non-technology stocks in this round of valuation is driven by the profit advantages of technology stocks and non-technology stocks;

(3) from the perspective of investor sentiment, the current market enthusiasm is significantly lower than that during the dot-com bubble.

from a medium-term perspective: the industry trend slowed down significantly after the dot-com bubble burst in 2000. judging from the current data, the matching degree between the stock price and performance of ai stocks in this round of us stocks is relatively good, but attention should be paid to the sustainability of subsequent ai performance. (1) the performance of us internet companies deteriorated in the late 1990s, and the industry trend showed a clear downward turning point. the penetration rate of the us internet industry fell sharply in the early 2000s. the gradual shrinkage of the incremental market meant that the high growth rate of demand was unsustainable. in addition, the problem of overcapacity caused by the continuous investment expansion in the 1990s became prominent, and the capacity utilization rate declined. both the primary and secondary markets of the internet industry encountered a cold winter. (2) judging from the current data, the matching degree between the stock price and performance of ai stocks in this round is relatively good. in 1999, the us technology stock bubble accelerated, which was manifested in the extreme split of the "stock price and performance" ratio between technology stocks and non-technology stocks, which laid the groundwork for the bubble to burst.

the microstructure deteriorated significantly during the two core asset bubbles that burst

when the two core asset bubbles of "nifty fifty" and "dot-com bubble" burst, the microstructure of the u.s. stock market deteriorated significantly and the market fragility was at a temporary high.

arbitrageurs' convergent trading of "core assets" causes the "microstructure deterioration" of the market - when the belief in "core assets" begins to waver and the relative profit advantage is difficult to maintain - this often punctures the fragile microstructure of the market - positions stampede induces severe liquidity shocks, forming negative positive feedback - the "core asset bubble" bursts.

the concentration of us stocks in this round has reached a historical high. whether the performance of subsequent "technology leaders" can renew the "ai faith" is the key to whether the high concentration of us stocks can be maintained. according to wind data, at the end of june 2024, the concentration of us stocks (market concentration = market cap of the largest stock (top 5% average) relative to the 75th percentile stock) hit a record high. it fell slightly in july and august, but it is still at a historical high. we combined the framework analysis of the two historical rounds of us stock "core assets" market performance. if the market's optimistic expectations for the relative profit advantage of ai technology stocks can be maintained, the trend of increasing concentration of us stocks may also continue, and vice versa.

microstructure: this round is not the "extreme bubble" of the dot-com bubble in 2000

analyzing from the microstructure of the u.s. stock market, we use several major indicators to compare this round with the dot-com bubble in 2000: although most indicators have certain similarities, this round may not be an "extreme bubble", so we can be relatively optimistic.

1. the current round of index-level increases is far less than the "dot-com bubble"

from an index perspective, as of august 28, 2024, the 1-year/2-year/5-year rolling cagr of the s&p 500 information technology and nasdaq 100 were all above the average level, but significantly lower than the levels during the "dot-com bubble" period.

2. the degree of differentiation between technology and non-technology valuations in this round is far less than that of the "dot-com bubble", and the market is more driven by profits

combined with the s&p 500 information technology pe/s&p 500 pe indicator, the degree of differentiation in valuations of us technology stocks vs. non-technology stocks in this round is far less than that of the "dot-com bubble". to a certain extent, it also confirms that the differentiation in valuations of us technology stocks vs. non-technology stocks in this round is more driven by the profit advantages of technology stocks vs. non-technology stocks.

in addition, the current valuation level of us tech giants is still in a relatively reasonable range. as of august 28, 2024, except for apple, the pe of leading us tech stocks is generally lower than the average of the past five years + 1std level.

3. from the perspective of investor sentiment, the current market enthusiasm is significantly lower than during the dot-com bubble

the bullish indicator of the american association of individual investors can reflect the enthusiasm of investors to a certain extent. in mid-july 2024, bullish reached a stage high of 53%, which is higher than the historical average (38%), but significantly lower than the level of the same period of the dot-com bubble. to a certain extent, it reflects that investors during the dot-com bubble were more enthusiastic.

meso-level: the current us ai stock price and performance match is relatively good

1. behind the bursting of the dot-com bubble, there is a significant slowdown in industry trends

the performance of internet companies in the united states deteriorated in the late 1990s and early 2000s. the bubble burst and the industry trend showed a clear downward inflection point. from the perspective of the penetration rate of the internet in the united states (the proportion of individual internet users to the total population), the 1990s was a golden period of rapid increase in penetration rate. from the late 1990s to the early 2000s, the penetration rate showed a clear downward inflection point. the gradual shrinkage of the incremental market means that the high growth rate of demand is unsustainable and the industry's prosperity has deteriorated marginally. at the same time, after the investment expansion in the 1990s, the problem of overcapacity in computer software and hardware began to gradually emerge. since 2000, the capacity utilization rate of the us computer industry has declined rapidly. as a result, technology investment has entered a trough, and fixed asset investment and venture capital in the us computer industry have declined significantly after 2002.

(ii) the current ai stock price and performance match is relatively good, and attention should be paid to the sustainability of subsequent performance

judging from the current data, the match between the stock price and performance of the us technology sector in this round is relatively good, but attention should be paid to the sustainability of ai performance. during the development of the dot-com bubble in the late 1990s, the bubble accelerated significantly in 1999. during this period, the valuation and stock price of technology stocks reached new highs, and there was a significant separation from the fundamentals. this was not only reflected in the increasingly extreme divergence between the trends of technology stocks and non-technology stocks, but also in the mismatch between technology stocks and the overall market in terms of stock price and performance. while the profit ratio of s&p 500 technology and non-technology stocks was generally stable, the stock price ratio rose sharply, laying the groundwork for the bursting of the bubble. in comparison, judging from the current data, the match between the stock price and performance of the us technology sector in this round is relatively good, but attention should be paid to the sustainability of ai performance.