The stock market could jump 20% from current levels as buy-the-dip mentality continues, JPMorgan says

A trader works on the floor at the New York Stock Exchange (NYSE) in New York, U.S., March 4, 2020. REUTERS/Brendan McDermid
A trader works on the floor at the NYSE in New York

  • The stock market has 20% upside potential from current levels, according to a Thursday note from JPMorgan.
  • Analysts at the bank said the bull market in stocks is not yet exhausted and that investors should remain overweight stocks.
  • Here’s why the stock market is set to continue grinding higher, according to JPMorgan.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Conditioned to “buy-the-dip” in stocks for more than a decade, investors continue to do just that, illustrated by the swift rebound from last week’s 3% decline in the S&P 500.

They should stick with that mentality going forward as the stock market is set to jump 20% from current levels, JPMorgan said in a note on Thursday.

“Stay overweight equities and commodities versus bonds and cash,” JPMorgan said. 

According to the bank, the bull market in stocks is not yet exhausted, and any slowdown in the recent strength of retail investors should be made up for by institutions that de-risked their portfolio last week amid an epic short-squeeze in stocks like GameStop and AMC Entertainment.

“While we recognize the risk from a potential slowing in retail investors equity impulse, we are reluctant to reduce our equity overweight in our model,” JPMorgan said.

JPMorgan’s forecast for 20% upside potential in the stock market is driven by its metric of equity positioning based on global non-bank investors’ holdings of bonds, stocks, and cash. 

“The argument is that the current implied equity allocation of 43.8% is still significantly below its post Lehman period high of 47.6% seen in January 2018, and that the equity appreciation needed to mechanically shift the implied equity allocation of non-bank investors globally from its current level to the post Lehman period is 23% for the MSCI AC World Index and even more for the S&P 500,” JPMorgan explained.

JPMorgan isn’t alone in its thinking. Fundstrat’s Tom Lee said in a note on Wednesday that the historic decline in volatility over the past three days sets the stock market up well for further upside ahead.

Read more: Investors are flocking to trade Dogecoin and other hot digital tokens with no Robinhood-style restrictions on Voyager. The CEO tells us why Bitcoin will hit $100,000 this year – and 3 other cryptocurrencies to watch

Read the original article on Business Insider

Millennials are driving a regime change in the stock market. Here are the 6 major differences between them and baby-boomer investors, according to Fundstrat’s Tom Lee

young people looking at phone outside travelling
  • A structural regime change driven by a flood of millennial investors is coming for the stock market, Fundstrat’s Tom Lee said in a note on Friday.
  • Evidence of the change has been front and center this week after Reddit’s WallStreetBets forum sparked massive short-squeezes in certain stocks at the expense of Wall Street hedge funds.
  • These are the 6 biggest differences between millennial investors and baby-boomers, according to Fundstrat.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Millennials are coming for baby-boomer investors, and the imminent regime change was front and center this week after a 6-million strong Reddit forum sparked massive short-squeezes in certain stocks at the expense of Wall Street hedge funds.

That’s according to a Friday note from Fundstrat’s Tom Lee, who has been fielding a flurry of calls this past week from institutional investors who are trying to make sense of the price action in stocks like GameStop and AMC Entertainment.

The short-squeezes have been driven by a surge in retail investing, which has been enabled by trading apps like Robinhood, which offer $0 trading commissions and make it easy to buy or sell a stock. 

“I believe the rise of retail investors is structural, led by Millennials,” Lee said, adding that there are marked differences between them and the baby-boomer generation, which controls a bulk of the wealth on Wall Street.

Read more: A veteran options trader breaks down the intricate strategy that Reddit traders used to outsmart Wall Street’s bet against GameStop – and shares 2 ways the parabolic rally could permanently alter the stock market

“Millennials are already very critical thinkers, thoughtful and cost conscious, with habits so different from GenX and Baby Boomers, that this is going to upend how many industries operate,” Lee said.

The same type of disruption that hit the hotel industry with Airbnb and the taxi business with Uber is now headed for the financial markets, Lee opined. 

And this new group of retail investors is a force to be reckoned with when you consider that the millennial generation, combined with its younger counterparts Gen Z and post-Gen Z, make up over 50% of the US population, the note said. 

“The impact from Millennials is set to go to ‘Plaid’ mode in the next decade,” Lee said in an apparent nod to Tesla’s premium Model S vehicle. The main reason why? They’re on the verge of inheriting $68 trillion in assets over the next two decades, according to the note. 

That’s about 70% of the $100 trillion controlled by US households. 

“Get the picture?” Lee asked.

So how will things change for the markets? Lee highlighted the 6 major differences between millennial and baby-boomer investors to try and find an answer.

Read more: A Wall Street expert warns that restricting GameStop and AMC trading from Robinhood could trigger ‘one of the worst-ever’ market crashes as retail investors lose trust

1. Millennials are stock heavy where as baby-boomers are bond heavy.

2. Millennials favor self-directed investments whereas baby-boomers favor hedge funds and mutual funds.

3. Millennials favor trading apps like Robinhood whereas baby-boomers utilize “White shoe investment banks.”

4. Millennials are getting their information from Reddit and TikTok where as baby-boomers favor Grant’s Interest Observer.

5. Millennials favor thematic investing in long-term disruptive trends whereas baby-boomers fundamental investing.

6. Millennials favor digital assets like bitcoin where as baby-boomers favor physical gold. 

“$68 trillion….yup,” Lee concluded. 

Read more: MORGAN STANLEY: Buy these 17 stocks with strong earnings that are expected to outperform into 2022 even if the broader market sinks


Read the original article on Business Insider

Reddit day traders are taking on hedge fund giants and winning, and it’s a sign of a new era for markets

  • The 4 million-strong WallStreetBets forum on Reddit has officially disrupted Wall Street.
  • They did it by piling into heavily shorted stocks, sparking short-squeezes at the expense of Wall Street hedge funds and large institutional investors.
  • “They are proving to be quite capable of mounting some successful ‘value capture’ against Wall Street institutional investors,” Fundstrat’s Tom Lee said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Wall Street hedge funds are scrambling, and it’s all because of a online investing forum that has more than 4 million members who self-describe themselves as “degenerates.”

Reddit’s WallStreetBets forum has surged in popularity after retail investors within the group successfully staged a gravity-defying short-squeeze in GameStop at the expense of hedge funds that were betting the physical video-game retailer was on its last legs. 

A short-squeeze occurs when investors who are betting against the stock are forced to close out their position by buying the stock, further adding fuel to the fire.

As of Thursday morning, GameStop had a year-to-date gain of more than 2,400%. The rally in GameStop crushed Melvin Capital, a roughly $12 billion hedge fund that has suffered a more than 30% decline due to its short position in GameStop.

The hedge fund received an emergency $2.8 billion investment from Steve Cohen’s Point72 and Ken Griffin’s Citadel amid the record surge in GameStop.

Read more: As Redditors flood the stock market, UBS breaks down 6 options strategies investors can use right now to protect their portfolios

Citron’s Andrew Left, a famed short-seller, also felt the heat from Reddit investors after he called for the stock to fall 50% last week. Left ultimately closed out his short in GameStop for a loss, as did Melvin Capital.

Maplelane Capital is another New York-based hedge fund that saw declines of about 30% due to its short position in GameStop, according to a report from The Wall Street Journal.

The developments are remarkable when you consider that retail investors on Reddit likely lack the sophisticated data feeds that multi-billion-dollar hedge funds rely on.

But after spending a few hours on the forum, billionaire investor Chamath Palihapitiya concluded that the Reddit traders can do the same fundamental analysis as hedge funds, if not better. Palihapitiya ultimately followed the retail investors into GameStop, and won big.

Now, Reddit traders are trying to replicate the success of GameStop and are targeting other stocks that are highly shorted by professional investors. And they’re succeeding.

Stocks like AMC Entertainment, Bed Bath & Beyond, and Virgin Galactic have soared this week as Reddit investors piled into the names via both stocks and deep out of the money call options, creating unprecedented demand for the shares.

Read more: A chief investment strategist breaks down how the GameStop saga could upend decades-long practices on Wall Street – and shares her 4-part advice for navigating the frenzied trading environment

“They [retail investors] are proving to be quite capable of mounting some successful ‘value capture’ against Wall Street institutional investors,” Fundstrat’s Tom Lee said in a note on Monday, adding that “large size does not always win.”

But the influence of WallStreetBets on stock moves could wane in the future as systematic funds “adjust” their models to incorporate this new source of volatility, Lee said.

And it’s not only quant funds that could put a dent in the influence of 4 million Reddit traders, it’s also trading platforms.

On Thursday, Robinhood restricted buy trades in a handful of stocks that have seen epic short squeezes and have been targeted by the Reddit group, including GameStop, AMC Entertainment, and Nokia, among others.

Now the question is, according to Lee: “Will their strategies endure?” 

Read more: Morgan Stanley handpicks 18 US stocks to buy for the best business models that deliver market-beating returns for years to come

Read the original article on Business Insider

Plug Power falls 7% after JPMorgan calls the company ‘fully-valued,’ issues price target below current level

Shell Hydrogen charging point 2019
  • Plug Power fell 7% on Thursday after JPMorgan initiated the hydrogen fuel-cell manufacturer at “neutral” with a $60 price target, representing potential downside of 14% from Wednesdays close.
  • Despite the downside price target, JPMorgan believes Plug Power is a first-mover in what represents a “massive market opportunity” that could be worth $200 billion.
  • Plug Power is “fully-valued but a must own in the hydrogen space,” JPMorgan said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

Plug Power fell as much as 7% on Thursday after JPMorgan said the hydrogen fuel-cell leader is “fully-valued but a must own in the hydrogen space.”

JPMorgan initiated Plug Power at a “neutral” rating with a $60 price target, representing downside potential of 14% from Wednesday’s close. The price target is based on a discounted 2024 market cap derived from a 60-times enterprise value-to-2025 EBITDA forecast of $534 million. 

Shares of Plug Power have been on a tear in recent months, and year-to-date Plug Power is up 105% as of Wednesday’s close.

Plug Power is a first-mover in the hydrogen space, having developed proven proton exchange membrane technology that powers logistic vehicles for first-rate customers like Walmart and Amazon. The company is capitalizing on what could be a $200 billion total addressable market, JPMorgan said.

Plug Power has a strong balance sheet and planned production scale to capitalize on that opportunity, the note said.

Read more: Cathie Wood’s ARK Invest runs 5 active ETFs that more than doubled in 2020. She and her analysts share their 2021 outlooks on the economy, bitcoin, and Tesla.

JPMorgan expects the New York-based company to see a 40% compounded annual growth rate that generates $1.2 billion of gross billings by 2024.

The three big growth opportunities for Plug Power are: 1) expansion of the existing materials-handling franchise, 2) expansion into new markets and verticals including Europe, electric vehicles, and data-center backup power, and 3) green hydrogen, JPMorgan explained.

And a recent partnership between Plug Power and Renault to jointly develop hydrogen-powered electric vehicles could “produce 40% upside to the 2024 revenue target, pushing revenues to $1.7 billion, and cause growth to accelerate in 2025,” JPMorgan said. 

Revenue in 2025 could exceed $2 billion if Plug Power manages to successfully execute on its growth strategy, JPMorgan said, adding that it thinks this “justifies the very high multiples at which the stock trades.”

Read more: BANK OF AMERICA: Buy these 10 Dow stocks to take advantage of rich dividends and a long-term strategy primed for a comeback in 2021

Read the original article on Business Insider

Longtime Tesla bear throws in the towel and upgrades shares after 1,200% rally, reflects on what it got wrong

elon musk laugh
Tesla CEO Elon Musk.

  • RBC upgraded shares of Tesla to “sector perform” after maintaining a bearish view on the stock since January 2019, it said in a note on Thursday.
  • The firm upped its price target to $700 from $339 and reflected on what it got wrong in its bearish call.
  • “There is no graceful way to put this other than to say we got TSLA’s stock completely wrong,” RBC said.
  • Watch Tesla trade live here.

A longtime Tesla bear is throwing in the towel after the stock rallied 1,200% since its January 2019 “underperform” initiation.

RBC upgraded Tesla to “sector perform” from “underperform” and increased its price target to $700 from $339, it said in a note on Thursday. A move to $700 represents downside potential of 7% from Wednesday’s close.

“There is no graceful way to put this other than to say we got TSLA’s stock completely wrong,” RBC said.

The biggest miss in RBC’s original analysis was Tesla’s ability to take advantage of its stock price to raise capital inexpensively, helping fund capacity outlays and growth, the note said.

In the past few months, Tesla has raised $10 billion in at-the-market share offerings, with its last raise of $5 billion less than 1% dilutive to shareholders.

Read more: Jim Callinan returned 83% to investors last year. Here are the 5 growth trends and 5 corresponding stocks the investing chief is watching in 2021 to position his portfolio for more explosive growth.

“This shows how easily Tesla can fund future growth whereas traditional OEMs need to generate significant cash from existing operations to fund their transition to electrification,” RBC said, adding that the higher stock price is “somewhat self-fulfilling to Tesla’s growth potential.”

RBC now expects Tesla to sell 1.7 million cars in 2025 at a five-year compounded annual unit growth rate of 28%, driven by additional manufacturing capacity coming online and maintaining a global electric-vehicle market share of about 20%.

Going forward, RBC argued, Tesla can use its high stock price to fund acquisitions, whether of a traditional automaker for additional manufacturing capacity, of suppliers or raw materials to further vertically integrate, or of software or artificial-intelligence companies.

“Tesla’s current valuation is just too large to ignore,” RBC said.

As of Wednesday’s close, Tesla was valued at $734 billion, making it the sixth-largest company in the S&P 500.

Read more: $138 billion megafund AQR shares a step-by-step guide for investors who want to reduce their portfolios’ carbon footprints – and explains why this move could propel returns in the long run

Read the original article on Business Insider

There’s good chance a ‘Santa Claus rally’ will drive the stock market higher into year-end, LPL says

NYSE trader
  • A seven-day trading period known as the “Santa Claus rally” is set to take hold of Wall Street and could push the stock market higher into year-end, according to LPL’s Ryan Detrick.
  • Based on historical data, the stock market has returned an average 1.3% and is positive 78% of the time during the seven-day window that starts on Christmas Eve and ends in early January.
  • And if a Santa Claus rally fails to materialize, it could serve as a warning sign that further market weakness is in store for the start of next year.
  • “If Santa should fail to call, bears may come to Broad and Wall,” said Yale Hirsch, creator of the Stock Trader’s Almanac.
  • Visit Business Insider’s homepage for more stories.

A “Santa Claus rally” is set to take hold of Wall Street as investors look for a strong finish in the stock market, according to a note from LPL chief market strategist Ryan Detrick.

The seven-day trading period that starts on Christmas Eve and ends in early January is known as the “Santa Claus rally” because of a strong tendency for stocks to post gains during the Christmas holiday period.

The phenomenon was discovered in 1972 by Yale Hirsch, creator of the Stock Trader’s Almanac.

According to historical data dating back to 1950, the S&P 500 has posted an average return of 1.3% and is positive 78% of the time during the last five trading days of December and the first two trading days of January.

According to Detrick, the period marks the strongest seven-day period in which stocks are reliably higher, and aids December in being the best performing month of the year for the stock market. 

The cause for the move higher in stocks? 

Read more: ‘It could be a Roaring 20s that will end badly’: An equities chief who oversees over $7 billion shares his investing playbook and major predictions for 2021 and beyond

“Whether optimism over a coming new year, holiday spending, traders on vacation, institutions squaring up their books before the holidays – or the holiday spirit – the bottom line is that bulls tend to believe in Santa,” Detrick explained. 

But if a Santa Claus rally doesn’t materialize towards the end of the year, it could serve as a warning sign to investors that the coming year might see a weak start for stocks.

Over the past 20 years, the five times stocks posted negative returns during the Santa Claus rally period, the month of January was lower for stocks each time.

“Should this seasonally strong period miss the mark, it could be a warning sign,” Detrick said.

Accordingly, Hirsch coined the phrase, “If Santa should fail to call, bears may come to Broad and Wall.” 

The New York Stock Exchange is located at the corner of Broad and Wall Streets. 

Read more: Deutsche Bank says you need to own these 10 telecom stocks as vaccine progress spurs a 2021 recovery for beaten-down sectors

Read the original article on Business Insider

The S&P 500 will surge 16% in 2021 as pent-up demand leads to strong GDP recovery, Fundstrat’s Tom Lee says

Tom Lee
  • US stocks are set to continue their bull run in 2021 as pent-up demand due to the COVID-19 pandemic leads to a stronger-than-expected recovery in GDP, according to Fundstrat.
  • In its 2021 outlook released on Thursday, Fundstrat’s Tom Lee outlined how the S&P 500 could surge 16% to 4,300 by the end of next year.
  • Besides a surge in demand from consumers that could be sparked by a “pandemic finale,” declining volatility and low interest rates are also supportive of the stock market, Lee said.
  • Detailed below is Fundstrat’s roadmap for the stock market in 2021, which includes an expected first quarter sell-off of at least 10%.
  • Visit Business Insider’s homepage for more stories.

Investors should get used to a rising stock market in 2021 as pent-up demand helps drive a better-than-expected recovery in the economy, according to Fundstrat’s Tom Lee.

In its 2021 outlook note released on Thursday, Fundstrat outlined a roadmap for the stock market in 2021 that includes a 16% surge in the S&P 500 to 4,300 by year-end.

“Pent-up demand and massive ‘relief’ and celebration of pandemic finale could lead to a substantially stronger than expected GDP recovery,” Lee said.

That latent consumer demand that’s stemmed from the COVID-19 pandemic shouldn’t come as a surprise given that China has staged a strong economic rebound after they got the virus under control, he added.

Read more: JPMorgan says stocks are primed for sustained gains in a way they haven’t been in years – and identifies 43 names to buy for above-average earnings growth in 2021

Also supportive of equities in 2021 will be continued low interest rates and a continued decline in volatility.

Fundstrat said expected real interest rates of negative 6% in 2021 and 2022 will represent the lowest level in more than 60 years. Real interest rates are derived from the nominal interest rate adjusted for the expected inflation rate.

Those low rates are a “massive tailwind” for asset heavy companies and could lead to strong outperformance of cyclical stocks over growth stocks, according to Fundstrat. 

But the S&P 500’s path to 4,300 won’t be a straight line higher. Instead, according to Lee, investors should expect a 10% correction sometime between February and April that drives the S&P 500 to the 3,500 level. 

“Equities need to work off overbought conditions before mid-year,” Lee said, pointing to heightened relative-strength-index levels and a sharp increase in bullish investor sentiment.

Read more: Buy these 26 stocks poised to surge as China starts to dominate the electric-vehicle landscape, UBS says

A 10% correction is in line with the first 12 to 18 months of price action in past bull markets across history, according to Lee. 

In terms of which stocks to own for 2021, Lee highlights companies within the consumer discretionary, industrial, and energy sectors.

And if we are indeed at the start of a new bull market for stocks that mirrors the prior bull market runs of 1982 or 2009, the S&P 500 could hit 10,000 by 2030, according to Fundstrat. That would represent a compounded annual growth rate of just under 15%.

Millennials will likely drive that move higher in both the stock market and the economy as that generation is only now beginning to buy homes, which represents a sizable driver of business in the US. 

“If this is a new bull-market, then stocks should have a very impressive decade of total return,” Lee said.

Read more: Fund manager Brian Barish has returned more than 550% to investors over 2 decades, and he just had 2 of his best years ever. He told us how he did it – and 3 top picks for the next 5 years.

Read the original article on Business Insider

Chipotle upgraded to buy with 11% upside potential on brand resilience through the pandemic

FILE PHOTO: The logo of Chipotle Mexican Grill is seen at the Chipotle Next Kitchen in Manhattan, New York, U.S., June 28, 2018.  REUTERS/Shannon Stapleton
The logo of Chipotle Mexican Grill.

  • Chipotle’s resilient brand amid the COVID-19 pandemic has led Stifel to upgrade the fast-casual Mexican eatery to buy from hold in a note on Tuesday.
  • Stifel assigned a $1,500 price target on the stock, representing potential upside of 11% from Tuesday’s close.
  • The firm sees Chipotle benefiting from increased consumer mobility in 2021 and believes the company has one of the most compelling unit growth prospects within the restaurant industry.
  • Visit the Business Insider homepage for more stories.

Chipotle’s resilience as a brand throughout the COVID-19 pandemic sets the company up well into the future for further gains in its business, according to a Tuesday note from Stifel.

The Wall Street firm upgraded shares of Chipotle to buy from hold and assigned a $1,500 price target, representing potential upside of 11% from Tuesday’s close.

Stifel expects Chipotle to benefit from increased consumer mobility in 2021 as the COVID-19 pandemic wanes thanks to the rollout and administration of successful vaccines developed by Pfizer and BioNtech and Moderna.

“In our proprietary consumer survey, over 18% of respondents were most excited to visit Chipotle once they felt safe,” Stifel said.

On top of that, Chipotle has “some of the most compelling unit growth prospects within the restaurant industry,” Stifel said. That could fuel growth in the company for years to come.

Read more: BlackRock shares its 11 top recommendations for a ‘new investment order’ in 2021 – and says the pandemic should prompt investors to completely rethink how they construct portfolios

Chipotle is targeting at least 6,000 domestic restaurants, more than double its store count of just under 3,000. That would likely equate to annual unit growth of 5 to 7%, according to Stifel, which added that 70% of new locations would use the higher sales margin Chipotlane prototype, which includes drive-thru lanes for quick order and pickup.

“We project the new prototype to reach a meaningful share of its total footprint over the next few years, contributing to total margin expansion,” Stifel said.

Besides the addition of drive-thru lanes, new menu items could attract more customers and help drive sales higher, Stifel said. Chipotle is testing cilantro-lime cauliflower rice and smoked brisket in certain markets, along with a quesadilla offering only for those who order through the Chipotle smartphone app.

Shares of Chipotle are up 61% year to date and traded up as much as 6% to record highs in Wednesday trades.

cmg cha.JPG
Read the original article on Business Insider

These are the 2 key technical levels to watch for the stock market in 2021, BofA says

A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, New York, U.S., March 11, 2020. REUTERS/Andrew Kelly
A trader works on the floor of the New York Stock Exchange (NYSE) in New York City

  • Two key technical levels in the S&P 500 should be on the radar for all stock market investors in 2021, according to a Monday note from Bank of America.
  • Critical support for the index in 2021 stands at 3,200, representing potential downside of 12% from Monday’s close, BofA said.
  • But secular trends and a bullish cup-and-handle technical analysis pattern suggest the S&P 500 could surge past 4,000 next year, representing potential upside of more than 10%, according to the note.
  • Visit Business Insider’s homepage for more stories.

US stocks have been on a wild ride in 2020, with a 35% peak-to-trough drawdown in the first quarter followed by an almost 70% rally to new all-time-highs.

Looking to 2021, the evidence remains bullish for stocks to continue their long-term trend upward, according to a technical analyst note from Bank of America. 

“Broadly positive trend, breadth, seasonality, volume, credit, momentum and macro indicators support continued upside into 2021,” BofA’s Chief Equity Technical Strategist Stephen Suttmeier said.

And the move higher in the Dow Industrials and transportation stocks during the second half of 2020 confirms a bull market is on solid footing, according to Dow Theory. 

BofA outlined two critical levels stock market investors should have their eye on next year.

Read more: From Wall Street heavyweights to boutique investment firms, we break down what 7 fund managers and market strategists think about Brexit as the ‘midnight hour’ approaches.

“Big 2021 Support”

First, critical support in the S&P 500 of 3,200. A move to that level from Monday’s close would represent downside potential of 12%. A brief correction in stocks in the fall tested the 3,200 range, which served as a bullish retest of the breakout in stocks over the summer.

“The 3,200 area, which is backed up by the rising 200-day moving average near 3,170 is a big support [level] on a deeper 2021 correction,” BofA said.

“Secular bull market points higher”

The second factor is upside potential. Specifically, BofA has its eyes on 4,000 in the S&P 500, which would represent potential upside of 10% from Monday’s close.

Supporting that potential move higher includes positive seasonality data and a bullish cup-and-handle breakout.

“Historical data suggests that the year after a year with a 10%+ drawdown tends to have stronger returns in the following January, 1Q and for the entire year,” Bank of America said. This seasonality trend could continue in 2021 given the 35% sell-off in stocks in 2020.

And based on presidential cycles, Joe Biden stands to preside over a strong showing for stocks in his first year as president, according to the note.

“First term year 1 cycles show an average return of 7.1%. Democrat first term Year 1 cycles have an average return of 11.4%,” BofA explained.

Finally, a cup-and-handle technical analysis pattern led to a breakout in the S&P 500 over the summer. The measured move target derived from this pattern is 4,270, representing potential upside of 17% from Monday’s close.

“The COVID-19 correction in March and rally into June market the cup and the June consolidation formed the handle of this bullish trend continuation pattern,” said BofA.

While BofA admits it may take until 2022 until this price objective is reached, they did not rule out the possibility of the S&P crossing 4,000 and moving towards that level in 2021. 

Read More: Shark Tank investor Kevin O’Leary told us 2 concrete strategies for building wealth over time – and shared how a rude awakening during the pandemic led him to build a new investing app

bofa chart232.JPG
Read the original article on Business Insider

Airbnb and DoorDash sink as analysts turn skeptical of massive IPO rallies

airbnb ipo nasdaq
The Airbnb logo is displayed on the Nasdaq digital billboard in Times Square in New York on December 10, 2020. – Home-sharing giant Airbnb was set for its Wall Street debut Thursday with a whopping $47 billion valuation amid a feverish rush for new shares in companies adapting to lifestyle changes imposed by the coronavirus pandemic. (Photo by Kena Betancur / AFP) (Photo by KENA BETANCUR/AFP via Getty Images)

  • Airbnb and DoorDash shares fell on Monday after analysts downgraded the newly public companies’ stock.
  • Both firms surged last week as outsized demand pushed prices well above their IPO levels.
  • Gordon Haskett downgraded Airbnb to “underperform” from “buy,” and expects shares to fall roughly 20% from current levels.
  • DA Davidson lowered DoorDash to a “neutral” rating from “buy,” adding that the company’s stock price leaves little room for future error.
  • Watch DoorDash trade live here.
  • Watch Airbnb trade live here.

Airbnb and DoorDash both tumbled on Monday as analysts downgraded ratings following both firms’ colossal public-market debuts.

Airbnb sank as much as 10.1%, while DoorDash plunged 13.6% at intraday lows. The two companies collectively raised $6.7 billion in back-to-back initial public offerings last week, capping a record year for IPOs. Massive demand for the firms’ shares fueled massive gains in their first days of trading, but analysts covering the companies are growing concerned that the stocks climbed above rational trading levels. 

Gordon Haskett changed its rating for Airbnb to “underperform” from “buy” on Monday, eschewing the bullish outlook he held for the firm just one week ago. The home-sharing company’s valuation is “more than stretched” after more than doubling in its Thursday debut, the firm said. Airbnb also trades at two times its estimated gross bookings value, where the average online travel group trades at a 0.6 multiplier, Gordon Haskett said.

The firm lifted its price target to $103 from $77, but the level still implies a roughly 20% drop from current levels.

Read more: Shark Tank investor Kevin O’Leary told us 2 concrete strategies for building wealth over time – and shared how a rude awakening during the pandemic led him to build a new investing app

Separately, DA Davidson downgraded DoorDash to “neutral” from “buy” following the firm’s 86% opening rally. The firm still feels DoorDash deserves to trade at a premium multiple due to its leadership in the food-delivery sector but noted its stock price leaves little room for error.

DA Davidson boosted its price target for DoorDash to $150 from $93. That level implies a slight drop from the stock’s current price. No other analysts have initiated ratings on DoorDash shares. 

Despite the shift in analyst sentiments and Monday losses, both companies still trade well above their IPO prices. Their rallies have fueled new scrutiny of market optimism, with some strategists concerned that the outsized demand for new issuances is a symptom of dot-com-era greed.

DoorDash traded at $157.51 as of 3:10 p.m. ET Monday. Airbnb traded at $129.33.

Now read more markets coverage from Markets Insider and Business Insider:

JPMorgan rolls out a supercharged tech trade designed to amplify gains in stocks like Tesla, report says

The upcoming Fed meeting could shed light on when policymakers will unwind key relief measures

‘We are very confident that the stupid is currently alive and well in this market’: Jeremy Grantham’s heir apparent Ben Inker breaks down how GMO plans to profit from the growth bubble through a new long/short equity strategy

Read the original article on Business Insider