Sunday Times

US market fall pricks bubble of smug bulls

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We need to look beyond baby-boomer stocks like healthcare and start paying attention to millennial­s

THURSDAY’S ugly smackdown in US stock markets erased nearly all of their gains for the year, confoundin­g the many pundits who predicted July and August would be a season of bullish complacenc­y.

Not everyone is totally comfortabl­e with the teetering heights of the S&P 500 and Nasdaq. That includes US Federal Reserve boss Janet Yellen. A fortnight ago, she pooh-poohed fears that property, shares and bonds were bubbles in peril of popping. But she warned that the social media and biotechnol­ogy sectors had attracted irrational exuberance.

Valuations on some ventures mirrored the run-up to the last great hi-tech bust, and prices were due a healthy correction.

The bullish camp acknowledg­es the pockets of froth, but counters that large biotech and social media companies are now mature and able to demonstrat­e their earnings potential — hence unlikely to precipitat­e a general market meltdown.

Bulls also say appetite for hot start-ups has not dwindled. Goldman Sachs has pinpointed exactly what angel investors, speculator­s and early adopters crave in an initial public offering: Smac.

Smac stands for social, mobile, analytics and cloud. While many such listed enterprise­s were duly clobbered after Yellen’s comments, they remain the single brightest spark of hope for the US stock market.

Pardon the jargon, but Goldman Sachs says “software solutions” developed by these firms “enable businesses to realign go-to market models with faster and informed decision-making driving an enhanced user experience”.

I think this translates into using big-data algorithms to help companies find value in the massive chunks of customer informatio­n they hold in their mainframes. Once typical buying behaviour or trends have been identified, the job of managers, product developers and marketers is made easier and more profitable.

It is very much a new-age field, particular­ly since data is being collected and stored at an unpreceden­ted rate — not just via billing records and website traffic, but by the “internet of things” that includes everything from smart television, fridges and air-conditione­rs to vehicle monitoring devices. Naturally a lot of excitement surrounds Smac, and the prices of many listed companies have been driven into the stratosphe­re.

InvestorPl­ace.com reckons all investors should be “watching demographi­c shifts as you craft your long-term strategy”. The website suggests we look beyond babyboomer stocks such as healthcare and insurance, and start paying attention to millennial­s (born between 1980 and 1995).

Research on this demographi­c group shows what they don’t want or need right now: cars, cable television, homebuilde­rs, bricks-and-mortar retail and soft drinks. Does that portend a big crash? Depends on your level of Smac addiction, I guess.

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