Bloomberg: I looked at the total return of the information technology sector of the U.S. equity market and disaggregated it into three components:
- The cumulative change in net income (in dollar terms) of each of the companies in the S5INFT Index
- The impact of stock buybacks and financial engineering, defined as the excess change in earnings-per-share versus dollar-terms net income
- The residual, which simply reflects changes in the P/E multiple from the baseline (end 2009), which we’ll call “risk appetite.”
Tech stocks have delivered a total return of 437% from the end of 2009 through the end of last month. Over the same period, the actual earnings of the relevant companies have risen from $82 billion to $242 billion, an increase of 194%. EPS actually increased by 271%, suggesting that financial engineering contributed 77% to the cumulative return of tech stocks. The residual, risk appetite, has contributed 167%.
- The cumulative change in net income (in dollar terms) of each of the companies in the S5INFT Index
- The impact of stock buybacks and financial engineering, defined as the excess change in earnings-per-share versus dollar-terms net income
- The residual, which simply reflects changes in the P/E multiple from the baseline (end 2009), which we’ll call “risk appetite.”
Tech stocks have delivered a total return of 437% from the end of 2009 through the end of last month. Over the same period, the actual earnings of the relevant companies have risen from $82 billion to $242 billion, an increase of 194%. EPS actually increased by 271%, suggesting that financial engineering contributed 77% to the cumulative return of tech stocks. The residual, risk appetite, has contributed 167%.