What is happening: “We receive many questions [about] if a potential bubble forms in the financial markets, “Mislav Matejka, head of JPMorgan’s global and European action strategy, said on Monday.
But the research teams of the big banks are reluctant to sound the alarm, pointing to historically low interest rates and huge sums of cash that are still being printed by central banks.
“Taking into account the return on Treasury, corporate credit or cash, the aggregate stock market index is trading at a historical below-average valuation,” Goldman Sachs told clients late Friday.
“With low interest rates likely to stay there, equities will continue to look attractive, especially compared to bonds,” Shiller wrote.
This does not mean that there is no reason to be cautious. Goldman noted that “market pockets have recently emerged to demonstrate investor behavior in line with balloon-like sentiment.”
“This does not mean that the ‘hot’ areas of the financial universe may not become much more volatile and be subject to profit crises, which could spread to even wider stocks,” Matejka wrote.
Both Goldman and JPMorgan highlighted special purpose procurement companies, or SPACs, as a potential problem area. In 2020, 229 U.S. SPACs – or “blank check” funds that investors return while looking for takeover targets – raised $ 76 billion, six times more than in 2019, per Goldman . In the first three weeks of 2021, another 56 SPACs raised $ 16 billion.
JPMorgan also noted that 2020 was the best year for dot-com boom IPOs, while those making their debut in the public market “recorded unprecedented gains in a short span of time. time”. Matejka called the moves “amazing.”
There is no sign that such enthusiasm is being established. A short video application 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, reports my CNN Business colleague Laura He.
Step back: Big investors like Carl Icahn and Jeremy Grantham have expressed concern about the state of affairs.
“The long, long bull market of 2009 has finally matured into a complete epic bubble,” Grantham wrote in a letter earlier this month. “Presenting an extreme overvaluation, explosive price increases, frantic emissions and hysterical speculative investing behavior, I believe that this event will be recorded as one of the great bubbles of financial history.
But banks – while highlighting some areas of concern and weakness – do not go that far and believe systemic risk remains limited.
Foreign companies give up the US and bet on China
Details: US direct investment by foreign companies fell 49 percent to $ 134 billion last year, according to a report released Sunday by the United Nations Conference on Trade and Development. In contrast, foreign direct investment in China increased by 4% to $ 163 billion in 2020.
2020 marked the first year in history that foreign direct investment in China has surpassed the United States, the UN said. China is now the world’s largest beneficiary of foreign investment.
Remember: China’s economy grew by 2.3% last year, while the rest of the world’s major economies shrank. The country’s ability to control the spread of the virus “helped stabilize investment after the early blockade,” according to the report.
It is worth noting that the abandonment of US investments by foreign companies began long before the pandemic. After reaching a high of $ 440 billion in 2015, according to the US Department of Commerce, foreign investment in the United States fell sharply.
Former President Donald Trump’s trade policies have affected foreign investment – especially in China, which has seen the sharpest decline in US investment in recent years. Growing economic uncertainty around the world has also been a contributing factor.
GameStop shares a lot of applause as Reddit applauds
Most recently, stock in GameStop, an old company whose stores are often located in malls with difficulty, rose 51% on Friday to $ 65.01. Monday rose 41% in premarket trading on Monday as investors promoted shares on social media with increasing zeal. The value of the stock has tripled in the last month.
The hype around GameStop has grown since the company added its founder, Chewy founder Ryan Cohen, who pushed for a digital overhaul. Last week, social media investors connected GameStop with increased ferocity, as short seller Citron Research presented the reasons why it thought the shares would drop to $ 20.
“We are investors who put safety and family first, and when we think this has been compromised, it is our duty to move away from stock,” administrative partner Andrew Left wrote in a letter, citing attempts at harassment and hacking.
My reading: I’ve spent the last 10 months talking about how commission-free trading apps like Robinhood affect market dynamics – and this episode provides a clear example.
It also talks more about what is happening in the financial markets. Day traders, who are looking for an increase in meteorological actions despite the pandemic, are convinced that bets like GameStop can pay off. But such moves are, of course, incredibly risky – and Wall Street points to the retail frenzy as a major area of concern when asked if stocks have grown too much, too fast.