Is there a prime time for technology stocks trading? Or the trap of the US stock bubble 2?

The 2 edition of the Internet bubble has arrived?

At present, the market value of apple, Amazon and Microsoft accounts for 20% of the S & P 500 index and more than a third of the Nasdaq 100 index. And their total value is about $5 trillion, more than the total economic value of Germany as a whole.

But the gap between the market value and free cash flow of the last big technology giant was at the time of the 1 version of the Internet bubble in early 2000.

Source: Silverlight asset management, LLC

Technology stocks have golden trading hours: opening / closing trading method

Silverlight asset management has done an interesting comparative test of trading methods: holding three major technology stocks for a whole year, and trading the three technology stocks only in the last half hour and the first half hour of each trading day, which one will get better returns?

Return on continued holding in the past year (7 / 24 / 19-7 / 23 / 20)

Microsoft (+ 45.7% (+ 457bn)

Apple (+ 80.1% (+ 650bn)

Amazon + 49.2% (+ 50.5bn)

In the past year, the “open / close” trading method has produced even more impressive returns

Microsoft “trading close”: + 58.9%

Apple “trade close”: + 95.8%

Amazon “trade close”: + 49.3%

The average return on the “open / close” method of the three major technology stocks is + 68%, nearly 10 percentage points higher than that of buying and holding for a whole year.

What makes technology stocks a prime time for trading?

Every day near the opening and closing, the capital flow will rush into the market crazily. Large capital flows exacerbate the volatility of stock prices, so financial experts generally do not recommend investors to trade around these times.

Bespoke, however, claims that half an hour after the opening is the best time to buy and sell. In 2015, bespoke shared a study showing that since 1983, investors have had the best trading time by buying the S & P 500 half an hour before closing and selling by 10 a.m. the next day.

Source: bespoke Investment Group

“One potential reason for the early strong performance may be related to mutual fund flows and foreign capital inflows,” said Paul Hickey, co-founder of bespoke. “In the 1980s and 1990s, a lot of money flowed into mutual funds, and when managers got new funds, they put them into the market.”

In addition, ETFs are becoming more influential now. By the end of 2019, the total investment of global ETFs exceeded $6 trillion, more than double that of hedge funds.

Today, more than 100% of the total funds flowing into the stock market are passive. Therefore, what we are witnessing now may be the systematic inflow of funds continuously catalyzing the process of Internet bubble 2.

Prime time doesn’t apply to all stocks

For the past four years, the top three tech stocks have dominated prime time trading. The average return of the three technology stocks was 41.2% in the prime trading period, but the average return of S & P 500 stocks was only 6.5%, and the return difference between the two was as high as 34.7%.

Source: Silverlight asset management, LLC

Under the passive bubble, winner Heng Ying

In the past four years, about $750 billion has flowed out of active equity funds, much of which has been transferred to passive index funds, according to data from the Bloomberg think tank. Due to the passive inflow of funds usually enter the market at the opening and closing hours, the stock prices of large cap stocks have obviously risen sharply during this period, as are many stocks with high kinetic energy and high growth. Take Apple’s stock price trend as an example. The figure below shows that Apple’s stock price has been rising step by step every time it reaches the closing time in recent days.

Source: Silverlight asset management, LLC

It is not hard to imagine that large-scale passive investment will distort the stock market. Usually, stocks are indexed from high to low according to the market value of the company. If the passive funds are much higher than the active funds in the market, the mainstream funds will flow into the company with the largest market value, which will cause investors to ignore the actual performance of the company.

Timothy ONeill, global joint head of investment management at Goldman Sachs, said that the result would be the “bubble machine”, a system of “winner take all”, and whether or not those big companies have created higher performance or profits, they will continue to expand. Timothy ONeill Such effects already exist, but the market can rely on active investors to counteract bubbles. However, under the general trend of passive funds, active fund investors are also less and less, thus fostering bubbles.

Today, nearly 85 cents of every dollar invested in retirement funds goes into the target date fund, a pension investment. The more Microsoft shares these funds buy, the higher Microsoft shares will be.

It seems that the gold trading hours of the three big technology stocks may actually be the two bubble alarm.

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