What happens: ‘We receive many questions [about] or could form a bubble in the financial markets, ‘Mislav Matejka, JPMorgan’s head of global and European equity strategy, said in a note to clients on Monday.
But the research teams at large banks are reluctant to sound the alarm, pointing to historically low interest rates and the large amounts of cash still being pushed by central banks.
“Taking into account the return on treasury, corporate credit or cash, the total stock market index is trading at a lower average historical valuation,” Goldman Sachs told clients late Friday.
“With a low interest rate likely to remain there, equities will look attractive, especially compared to bonds,” Shiller wrote.
That does not mean there are no reasons to be cautious. Goldman noted that “the pockets of the market recently appear to be that investor behavior is consistent with the bubbly sentiment.”
“This is not to say that the ‘hot’ areas of the financial universe may not become much more volatile and will be subject to profitability, which could spread even wider to equities,” Matejka wrote.
Both Goldman and JPMorgan have highlighted specialty procurement firms, or SPACs, as one possible problem area. In 2020, 229 US SPACs – or ‘blank check’ funds that investors get back while looking for takeover targets – raised $ 76 billion per Goldman, six times more than in 2019. In the first three weeks of 2021, another 56 SPACs raised $ 16 billion.
JPMorgan also noted that 2020 was the best year for IPOs since the dot-com boom, while those who made their debut in the public market ‘recorded unprecedented gains in a short period of time.’ Matejka called the moves ‘staggering’.
There is no sign that such enthusiasm is waning. A short-lived video app that competes with the Chinese version of TikTok is preparing for what is expected to be the largest initial public offering in the world since the pandemic began, my CNN business colleague Laura He reports.
Step back: Big-time investors like Carl Icahn and Jeremy Grantham have expressed concern about the state of affairs.
“The long, long bull market since 2009 has finally become a full-fledged epic bubble,” Grantham wrote in a letter earlier this month. “With extreme overvaluation, explosive price increases, insane issuance and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history.”
But while banks give a summary of some aspects of concern and weakness, they do not go that far and think the systemic risk is limited.
Foreign companies give US price and bet big on China
The details: Foreign direct investment in the United States fell 49% to $ 134 billion last year, according to a report released by the United Nations Conference on Trade and Development on Sunday. In contrast, foreign direct investment in China grew by 4% to $ 163 billion by 2020.
2020 was the first year in history that foreign direct investment in China was the top of the United States, the UN said. China is now the world’s largest recipient of foreign companies’ investments.
Remember: China’s economy grew by 2.3% last year while the rest of the world’s largest economies shrank. The country’s ability to control the spread of the virus has contributed to stabilizing investment after early exclusion, according to the report.
It is noteworthy that the decline in foreign investment in US companies began well before the pandemic. After the U.S. Department of Commerce reached a high of $ 440 billion in 2015, foreign investment in the United States declined sharply.
Former President Donald Trump’s foreign trade policy has hurt foreign investment – particularly from China, which has seen the sharpest decline in US investment in recent years. Increasing economic uncertainty around the world has also contributed to a contributing factor.
GameStop shares soar while Reddit cheers
The latest: Stock in GameStop, a heritage business whose stores are often located in struggling malls, soared 51% to $ 65.01 on Friday. They rose 41% in trading in front of the market on Monday as investors indicated the growing zeal on social media. The value of the stock has more than tripled in the past month.
Hype around GameStop has jumped since the company added Chewy founder Ryan Cohen, who did a digital overhaul, to its board. Last week, investors on social media stopped GameStop with greater ferocity when short seller Citron Research set out the reasons it believes shares would fall to $ 20.
“We are investors who put safety and family first, and if we believe it is being compromised, it is our duty to step away from a stock,” Andrew Left, a managing partner, wrote in a letter and spoke about harassment and burglary attempts.
I read: We’ve been talking for the past ten months about how non-fee trading programs like Robinhood’s affect market dynamics – and this episode provides a clear example.
It also speaks more broadly in the financial markets. Day traders who, despite the pandemic, are looking at a meteoric surge are convinced that bets like GameStop can bear fruit. But such moves are, of course, incredibly risky – and Wall Street points to retail madness as an area that is very worrying when you ask if stocks have gone too high, gone too fast.