Caveat Emptor , Tik Tok three blind mice ran up the clock

If the US technology sector was not reaching heights of euphoria in the past few weeks, overnight on Wednesday and into Thursday, the sector must be pushing that much closer. The S&P 500 gained almost 1% on Wednesday as a result of extraordinary moves amongst some of the favored technology companies. Netflix up 12%, Adobe 9%, and Facebook 10%, the winner was Salesforce gaining over 25% on the back of strong earnings and general enthusiasm for cloud software companies. Unlike the tech bubble of 2000, this sector does now generate huge amounts of cash, but the sense of hope that is being projected is beginning to feel more than a little excessive. This is probably no more clearly demonstrated as Apple alone has a greater market capitalisation than the whole of the FTSE 100 at this time. It will be interesting to see what provides better returns over the next ten years. I would have a small wager on the FTSE 100.

To demonstrate the misleading picture technology shares are giving to investment returns, the Russell 2000 smaller-cap index is down this year and fell again on Wednesday. Despite the 1% rise in the index, the majority of stocks in the S&P 500 fell. The Vix rose over 5% and remains elevated above its historic average, another indication that speculators are still concerned with the excessive enthusiasm for a small number of companies and what happens if that wanes. That may not be the only warning signal as the S&P 500 sits almost 15% above its 200 days moving average. Historically time for a correction to come.

This pattern was repeated on Thursday as the Vix rose and tech stocks continued to gather momentum. Federal Reserve Chairman announced that his committee had unanimously approved a new strategy that will effectively set fundamentally change a policy that has endured over three decades. The Fed has now taken the view that employment levels and inflation rates are no longer somehow a consequence of one another. Higher employment does not necessarily lead to higher inflation, Mr. Philips, and his curve out the economic window. This is based on their experience of the past few years.

Interest rates will not now necessarily be pre-emptively raised to head off higher inflation. The Fed mandate is price control and this new policy has now to call into question how they will manage this role going forward. What is does do is reinforce the view that interest rates are set to stay low for quite some time and the Fed balance sheet is unlikely to shrink anytime soon.

March 2000 the float of Lastminute.com proved a bridge to far for tech valuations, possibly the bidding war currently taking place for a dance app may be the swansong for this tech boom.