Displaying items by tag: S&P 500
Bank of America’s Sell-side indicator that tracks equity allocation increased to…see the full story on our partner Magnifi’s site
January and early February offered some rough times for investors. The two-week meme stock debacle had most investors’ hearts skip a beat...view the full story on our partner Magnifi's site
There has been a lot of speculation over the last month about whether the market is in a bubble. The reason for this are numerous: the huge run up in large cap growth stocks, the meme stock frenzy and beyond. However, the answer to whether the market is in a bubble can be found in a recent study and paper by Harvard. Researchers from the university outlined what bubbles really are, and clearly show that by historical standards there is only one sector of the market currently in a bubble: the S&P 500 Technology Hardware, Storage & Peripherals index, which does include Apple. However, no other sectors, nor the S&P 500 itself could be considered to be in a bubble. In fact, it is quite rare for the market as a whole to be in a bubble. Rather, market bubbles are usually constrained to a small handful of sectors. This could be seen in what is considered to be one of the biggest of all time—the Dotcom bubble. In the late 1990s and early 2000s, tech stocks surged to extraordinary valuations, while many sectors, like value stocks, lagged. When the bubble burst, many sectors actually benefitted (like value stocks).
FINSUM: This history is quite useful for context, but as our readers know, we feel each market cycle is unique and thus historical insight can only take you so far. In this instance, we think it is important to take into consideration that bonds are yielding very little, meaning there is no good alternative to equities. We believe this situation—which is obviously created/supported by the Fed and government—will help continue to lift equities.
The market has been doing great. So great in fact, that many are nervous about a swift correction. Despite this, the market continues to push for new all-time highs each week. Credit Suisse weighed in on the market in a big way this week. To be clear, the bank is not exactly bearish on the market. Their overall position is “We have remained overweight equities on the back of highly supportive policy, a high ERP [equity risk premium], the start of a bond-for-equity switch and huge excess liquidity, while tactical indicators are not yet sending a sell signal”. That said, the bank warned that there was one very “high” risk to the market: the Fed. Credit Suisse thinks there is a good chance that the Fed suddenly gets less dovish in the second half of the year after some good growth in 1H. This would be a dramatic turn for investors and could risk a sharp reversal.
FINSUM: We have to agree with this risk. The huge stimulus and excess liquidity which are flooding the market are major tailwinds, so if they reversed, it would be a shock. The whole set up reminds of us what occurred in Q4 2018.
According to both Morgan Stanley and Goldman Sachs, last week’s retail-driven chaos was nothing…Read the full story here on our partner Magnifi’s site.