U.S. stocks record high

Stock market talk of froth and bubbles

Are U.S. stock markets in bubble territory?

The Dow Jones Industrial Average smashed its way to a new all-time high Wednesday gaining some 425 points to close at a record: 31962. The new high was reached after a volatile session that at one point saw the Dow intraday drop more than 110 points. Futures have since witnessed the Dow move above 32000 points.

The move higher came as the Fed head, Jerome Powell allayed investor fears of inflation saying the central bank’s focus is on supporting the U.S. economy and employment – policy remains accommodative. The S&P 500 gained to close at: 3925 adding 44 points. The Nasdaq climbed too after a recent sell-off.

Yields, inflation and interest rates

So, markets continue the upward march as talk of bond yields, inflation and interest rates hit the headlines. With all this in mind, is a potential market bubble forming? If you follow the comments made of late, you would clearly arrive at the conclusion that this is indeed the case.

Talk of lofty elevated stock valuations, recent bond yield increases, inflationary pressures, interest rates, reflation and Bitcoin and GameStop shenanigans and stock rotation may suggest we are in a new market bubble. So are we?

As stock market investors move from over-valued tech’ and rotate to growth and value stocks you would think equities are not really in a bubble. Confused?

But if you dig deeper you would be right to be confused. Just take a look some of these more recent headlines.

Some recent market headlines suggest that we could soon experience a stock market bubble… what do you think?

Here are some headline snippets demonstrating the potential concerns many investors and analysts have with the current stock market

Stocks

Headline snippets from November 2020 – February 2021

Take from this what you will

  • ‘J P Morgan’s barometer says markets most complacent in two decades’ – Feb 15th. 2021 – reported on Bloomberg
  • ‘Citi strategist says 10% correction in U.S. stocks is ‘very plausible’ – Feb 17th. 2021 – reported on Bloomberg
  • ‘S&P 500 closes slightly lowers as investors grow concerned about surging bond yields’ – 15th Feb 2021 – reported on CNBC
  • ‘From tech to Bitcoin, long-time bull Ed Yardeni worries a meltdown will strike the market’ – Jan 10th 2021 – reported at CNBC
  • Surging debt during the pandemic is creating dangers for investors and developed countries’ – Nov 20th. 2020 – CNBC
  • ‘How the pandemic drove massive stock market gains, and what happens next’ – Dec 30th 2020 – CNBC
  • ‘Wall Street strategists see stocks gaining 9% in 2021 after a possible speed bump to start the year’ – Dec 18th. 2020 – CNBC
  • ‘Ray Dalio sees flood of money with soaring asset prices’ – 8th Dec 2020 – CNBC
  • ‘Virus surge is leading to a double-dip recession and a dollar crash, economist Stephen Roach warns’ – Nov 30th 2020 – CNBC
  • ‘The Fed and the promise of a vaccine aren’t enough to protect investors from a ‘reckoning’, top economist warns’ – Nov 30th 2020 – Marketwatch
  • ‘A popular stock market indicator flashes red as Dow soars to records Friday’ – Dec 5th. 2020 – this referred to the Buffett indicator in a report carried by Marketwatch
  • ‘Here’s where to invest your money before traders start ‘rotating’, if not stampeding’ out of stocks, according to one Warren Buffet disciple’ – Dec 28th 2020 – Marketwatch
  • ‘Stock market timing expert DeMark ‘confident’ S&P 500 surges 5% in next 2-3 weeks – then watch out’ – Dec 28th 2020 – Marketwatch
  • ‘Bigger Stimulus? Here’s why now may be seen as the ‘peak of this bubble’, warns strategist’ – Jan 8th 2021 – Marketwatch
  • ‘Bitcoin’s parabolic price surge near $42,000 may be the ‘mother’ of all bubbles’ – Jan 9th. 2021 – Marketwatch
  • ‘Bitcoin sees bear market skid – living up to its reputation for seismic price swings’ – Jan 11th 2021 – Marketwatch
  • ‘Stock market bulls brace for major gut check as earnings, Fed and GDP loom’ – Jan 25th 2021 – Marketwatch
  • ‘U.S. stocks book worst daily losses since October as Powell stresses long road to recovery and short squeeze drama plays out’ – Jan 27th 2021 – Marketwatch
  • ‘Amid the GameStop led frenzy, Jefferies says ‘plenty of air’ to come out of riskier assets. Another strategist says wait to buy the dip’ – 28th Jan 2021 – Marketwatch
  • ‘We’re at this point where stock markets are just ludicrous’, says Carson Block’ – Feb 2nd. 2021 – Marketwatch
  • ‘Stock markets stoked by stimulus hopes – here’s what investors are counting on’ – Feb 12th. 2021- Marketwatch
  • ‘Why the stock market’s ‘worst case’ scenario depends on these three ingredients, rising yields, widening credit spreads and rising dollar would spell trouble’ – Feb 20th. 2021 – Marketwatch

Draw your own conclusion?

Misguided opinion or early warnings? The bubble hasn’t burst yet despite all of these timely reports

Despite all of the analysis, opinion and concern highlighted in these headline articles, stock markets continue to charge ever higher. It very much looks like stimulus, fiscal policy and the ‘rotation’ of stocks from tech to growth and value stocks are winning over yield and inflation worries. The successful global rollout of vaccines is having a substantial and dramatic effect on economic confidence. This is obviously the main reason economies will soon start to recover.

What we are now witnessing will keep the market elevated for a little while longer. But be careful, when all done – there will be a big pull back.

Is debt the real problem?

The unprecedented level of stimulus and fiscal policy and support has created astronomical levels of world debt. Maybe this is the true bubble? However you look at the stock market – as more ‘easy’ money is pumped freely into the world financial system – a bubble will form at some point, sooner or later.

Take cover now.

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