Today's massive losses in ULTA, a well-known high-flying stock, serves as a cautionary tale as to what happens when stocks with overinflated expectations face economic reality.
As the chart above shows, growth stocks in general, such as those that now dominate the S&P 500, are as expensive as they were in the year 2000. Therefore they carry massive downside risk and limited upside. The stock market has been driven by the Fed's policy to suppress rates, which has led to multiple expansion (higher P/E ratios without huge growth in earnings). The vast majority of technology stocks are now priced with astronomical valuations — reminiscent of the period right before the tech bubble burst. Investors who are positioned in such high-flyers and "story" stocks are playing musical chairs with real money.
Value stocks now offer real upside opportunities without the gigantic downside risk that growth stocks carry. While the momentum game can continue for a short time longer, it makes sense for those averse to volatility and losses to start to reallocate their investments toward great companies ignored by those who are chasing returns without regard for risk. Highgate can help with this because this is what we do. We would love to speak with you about how we can help you significantly reduce your risk, avoid exposure to losses in today's speculative market and improve your long-term returns.