What happens: “We get a lot of questions [about] Can a bubble form in the financial markets, “said Mislav Matika, head of JPMorgan’s global and European capital strategy, in a statement to customers on Monday.
But the research teams at the big banks are hesitant to panic, pointing to low historical interest rates and the huge amounts of cash still being printed by central banks.
“Given the yield on debt, corporate credit or cash, the aggregate stock market index is trading at a lower-than-average historical value,” Goldman Sachs told clients late Friday.
“With interest rates low and likely to remain there, stocks will continue to look attractive, especially compared to bonds,” Schiller wrote.
That does not mean there are no reasons to be wary. Goldman noted that “recently, market pockets appear to be exhibiting investor behavior consistent with bubble-like emotion.”
“This does not mean that the ‘hot’ areas in the financial universe may not be much more volatile, and will be subject to periods of profit-taking, which could even spread to stocks more widely,” Matica wrote.
Both Goldman and JPMorgan have highlighted dedicated acquisition companies, or SPACs, as one potential problem area. In 2020, 229 U.S. SPACs – or check-empty funds that investors return while seeking takeover targets – raised $ 76 billion, six times more than in 2019, per Goldman. In the first three weeks of 2021, 56 additional SPACs raised 16 Billion dollars.
JPMorgan also noted that 2020 was the best year for IPOs since the dot-com boom, while those who made their public appearances “recorded unprecedented increases in a short period of time.” Matijka called the moves “frightening.”
There is no sign that such enthusiasm is settling down. A short-form video app that competes with the Chinese version of TikTok is preparing for what is expected to be the world’s largest initial public offering since the onset of the epidemic, CNN business associate Laura He reports.
Step back: Big investors like Carl Iken and Jeremy Grantham have expressed anxiety over the state of affairs.
“The longest and longest bull market since 2009 has finally matured into a full-blown epic bubble,” Grantham wrote in a letter earlier this month. “With extreme overestimation, erupting price rises, insane issuance and speculative investor behavior in hysteria, I believe this event will be recorded as one of the great bubbles of financial history.”
But banks – while describing some areas of concern and weakness – do not go that far, thinking that systemic risk remains limited.
Foreign companies are giving up on the US and betting big on China
Details: Direct investment in the United States by foreign companies fell 49 percent last year to $ 134 billion, according to a report released Sunday at the UN Conference on Trade and Development. In contrast, foreign direct investment in China grew 4% to $ 163 billion by 2020.
The UN said that 2020 was the first year in history that foreign direct investment in China was at the head of the United States. China is currently the world’s largest recipient of foreign company investment.
Remember: China’s economy grew by 2.3% last year while the rest of the world’s major economies shrank. The state’s ability to control the spread of the virus “helped stabilize investment after early closure,” according to the report.
It is worth noting that the downturn in American investment by foreign companies began long before the plague. After reaching a peak of $ 440 billion in 2015, according to the U.S. Department of Commerce, foreign investment in the United States was on a sharp downward trend.
Former President Donald Trump’s appropriate trade policy has hurt foreign investment – especially from China, which has represented the sharpest decline in US investment in recent years. Growing global economic uncertainty has also been a contributing factor.
GameStop shares skyrocket when Reddit encourages
Last: Shares in GameStop, a heritage company whose stores are often located in struggling malls, jumped 51 percent Friday to $ 65.01. They have risen another 41% in pre-market trading, with investors displaying the stock on social media with increasing zeal. The stock has been worth more than three in the last month.
The hype surrounding GameStop has skyrocketed since the company added Chewy founder Ryan Cohen, who pushed digital renovation, to its board of directors. Last week, social media investors stabbed GameStop with increased cruelty, as short seller Citron Research described the reasons why it thinks the stock will drop to $ 20.
“We are investing in putting safety and family first and when we believe it has been harmed, it is our duty to stay away from stocks,” managing partner Andrew Left wrote in the letter, noting the harassment and burglary attempts.
I read: We’ve spent the last ten months on how free trading apps like Robinhood affect market dynamics – and this chapter provides a clear example.
It also talks about what is happening in the financial markets more broadly. Day traders, who have watched a meteoric stock boom despite the plague, are convinced that gambling like GameStop can pay off. But such moves are, of course, incredibly dangerous – Wall Street points to retail frenzy as the area of most concern when asked if stocks have risen too high, too fast.