March 9, 2021
With everything from bitcoin to IPOs so perky, many have asked whether a financial bubble is underway. The answer may very well be yes, but with a nuance: Some experts think there are a series of microbubbles gurgling up rather than a single immense boom.
Strategists at JPMorgan have noted pockets of bubble-like excesses in certain areas, like renewable energy firms, crypto assets, and electric vehicles, but no major asset classes tick all the boxes. Likewise Saxo Bank’s head of equity strategy listed 40 stocks mainly focused on biotechnology, software, media, and gaming that have little in the way of profits and appear disconnected from economic fundamentals. And that’s to say nothing of the so-called meme stocks, like GameStop, that retail traders on Reddit have banded together to pump higher.
However, I donât expect stocks to go straight down, find a bottom and then rebound.
This downdraft is occurring at about the same time that markets sold off last year, but I do not expect the kind of severe correction we suffered through then. Overall, I am anticipating a 10 to 15 percent decline, as I mentioned last week. Actually, as of Friday morning, we have suffered a 6.3 percent decline from the top on the S&P 500 Index futures contract. The pullback, by the way, is long overdue. I am hoping it will flush out some of the speculation and froth that were rising to dangerous levels among certain stocks.
That dichotomy of the economy winning and the stock market losing, I don t think investors have their minds wrapped around that at all, Smead said.
His comments come off the back of a sharp rise in the yield on the benchmark 10-year Treasury note last week. The move, which was driven by the rollout of vaccines and hopes of pent up demand, boosted growth and inflation expectations and knocked risk assets, as investors began to consider the possibility of central banks tightening monetary policy.
Stocks can often fall as rates rise as large firms have to pay more to service their debts, causing investors to reassess the trading environment.