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By CCN.com: Stock market analysts believe that the recent stock market rally which boosted prices of certain tech stocks will be short-lived, with Netflix and Amazon singled out as potentially heading for a “purgatory period”.
Writing in a recent blog post, Smead Capital CEO, William Smead says that Amazon and Netflix investors may have seen the best of these two stocks, with only a remote possibility of either company reaching last year’s highs.
Using Microsoft – which took 16 years to get back to its peak following the end of the dotcom bubble – as an example, Smead hints that once the glamour around the e-commerce scene is gone, Netflix and Amazon will have just as difficult a time climbing back up the stock market as Microsoft did.
Writing in his post, Smead says:
If today’s e-commerce glam stocks peaked last year as the multi-bubble chart shows they might have, could this current rally in shares of Netflix and Amazon be one of the big rallies? Are these rallies part of the process of bottoming them for an extended purgatory period like the last tech euphoria episodes?
Impending ‘Purgatory Period’
In his article, Smead points out that even with three separate rallies, Cisco and Intel have still not had reached their 2000 high on the stock market after 19 years. This he says, may be an indication that current rallies may just be a way of dragging out the inevitable if Bank of America data spanning 40 years is extrapolated onto Netflix and Amazon. For this reason, he says “glam stocks” are definitely not a flashing buy for him for the time being.
Like Smead, Goldman Sachs strategist, Peter Oppenheimer has also predicted that the big wins witnessed since the start of the year are most likely post-holiday gains that will fade out. The market consensus, however, remains divided as to whether markets are still benefiting from last minute post-holidays wins or stock prices are indeed picking up as part of an emerging bull trend.
Speaking at a conference recently, Oppenheimer said:
At the end of last year, particularly in December, markets became too negative about the outlook for growth this year. We saw a very sharp drawdown, a significant derating of risky assets and now a rally, but I think that rally has got limits because, fundamentally, we’d expect quite low profit growth over the course of this year across major equity markets, and I think that will cap the upside as well.