WHY HAVE GROWTH COMPANIES TANKED?

WHY HAVE GROWTH COMPANIES TANKED

The "growth" is growth in earnings. Tremendous growth in earnings were and still are expected.

Analysts mostly value companies using the idea that if you can sum all future earnings, you've got the value of the company.

Except as £100 today is worth more than £100 next year you should apply a discount to those earnings to know what they're worth in today's money. 

And that discount rate is linked to ... inflation (up inflation, up interest rates, up discount rate).

So suddenly those companies are worth less.

But hey, not 25% less! And hey, this inflation everyone fears ... there aren't any signs and won't be for a couple of years if at all, according to the Fed.

Inflation comes from squeezing the output gap - post-covid, stimulus-inspired increase in demand will mean pressure on supply, pushing up prices.

So sounds like markets have been freaked and cool-headed investors would not be so panicked.

We'll see next week ...