As US stock markets continue to push to all-time highs there are growing concerns that investors are ignoring reality. We have a situation where finance costs are still historically low, despite expectations of further US interest rate rises, and investors keep ploughing money into the stock market. However, there are a number of issues which investors seem to be ignoring which could have a significant impact on company valuations.
Disappointing US employment figures
While December saw an additional 148,000 employment positions in the US economy, this was less than the expected 180,000. There are strong signs that the US economy is fast approaching “full employment” having added more than 2 million jobs per annum for the last seven years. Even though the employment market has been particularly buoyant of late this has not been reflected in wages which continue to lag behind. If wages are lagging and the US economy is fast approaching “full employment” it is difficult to see how the US government can increase tax income for the foreseeable future.
Chip manufacturers under pressure
While Intel has taken a significant PR hit after announcing potential flaws in its CPU chips this would seem to be a more widespread than issue than first thought. There are rumours and counter rumours of other chip companies looking to address potential flaws although with at least 3 billion computer chips at risk there is already a real threat to security. Even though we have yet to hear of any major issues relating to the chip vulnerabilities it is worth reminding ourselves that not all computer attacks/hacks are made public. The fact that the world today is effectively based upon powerful computer chips could in theory put all areas of life/business at risk.
Apple and the iPhone debacle
There have been rumours for many years that companies such as Apple were intentionally “slowing down” some of their older hardware prior to the release of the updated models. Even though Apple has been extremely transparent in recent weeks regarding the reasons behind the system changes, this has not gone down well with customers. Many customers, rightly or wrongly, believe they have been unduly coerced into upgrading their iPhone’s often at significant cost. Even though the ongoing $999 billion class action is nothing but a showcase many experts expect significant legal/compensation expenses in the future.
As we saw with the car emissions scandal, which brought down Volkswagen, lifting the lid on individual company actions very often lifts the lid on sector wide activity. Are there any other companies out there who have followed Apple’s “customer friendly” actions to slow down older hardware?
Striking at the core of stock market investment
These are just three examples of issues which have helped to push US stock markets to all-time highs. They have all played their part in bringing a feelgood factor to the US stock market and encouraged investors to continue ploughing money into leading companies. However, there are over 3 billion computer chips potentially at risk of hacking, Apple has already admitted slowing down older hardware and the US economy is fast approaching full employment – with wages showing little sign of catching up.
It is difficult to see what might prompt a correction in the US stock market with cheap finance still available. The likelihood is that it will occur when we least expect it, when investors take their eye off the ball and everybody is looking forward to more impressive growth. Are we there yet?