It s not exactly a surprise there are a number of signs pointing to historic overextension not only at the top of the indexes, but throughout much of the market. And just as the laws of physics dictate how high something can be built without buckling over, there are loose axioms around how overextended valuations can get. Without the buttress of low yields as the economy recovers, price multiples are looking as if they re on an unstable foundation.
These market axioms are based on precedent. And for Jonathan Coleman, a small- and mid-cap portfolio manager at Janus Henderson, which manages $364 billion in assets, the past is illustrating how extreme investor euphoria and the valuations it is pushing up currently are.
10-year Treasury yields have risen to their highest levels since before the pandemic in recent days.
James McDonald, CIO at Hercules Investments, told Insider he expects yields to continue rising.
He said they could rise to 2.5% by the end of March and trigger a 20% sell-off in the S&P 500.
Yields on 10-year Treasury notes have spiked to a one-year high over the last month, rising above 1.5% as COVID-19 cases fall and vaccinations continue positive developments for the economic recovery ahead.
According to James McDonald, chief investment officer of the alternative asset manager Hercules Investments, the bleeding isn t likely to stop anytime in the coming weeks.
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Economist David Rosenberg is warning that the S&P 500 is due for lackluster returns this year.
He said the S&P 500 s most expensive stocks could see a median 30% drop, like in the dot-com bubble.
He laid out in several charts how extreme investor euphoria has become.
Investor euphoria has seemed to reach a particular level of bizarreness this year.
Stock indices are at all-time-highs despite an uneven economic recovery and the risk that new strains of COVID-19 may prolong the global pandemic.