The broader stock market is not in a bubble, but these 5 sectors are, according to JPMorgan

NYSE trader
  • Concerns over a potential bubble forming in the stock market have been growing as equities continue to hit record highs.
  • But according to a Thursday note from JPMorgan, the broader stock market is not in a bubble.
  • Instead, five sectors in particular seem to be in bubble territory after more than tripling in price, the bank said.
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A continued rise to record highs in the stock market has some worried that a bubble is forming as valuations appear stretched and rising inflation seems imminent.

But according to a Thursday note from JPMorgan, there is no bubble to be found in the broader stock market. High expectations for historic economic growth amid a reopening of the US economy supports the move higher in stocks, according to the bank, which expects US GDP growth of 6.3% for 2021.

But within certain sectors, there does appear to be pockets of froth that are likely experiencing a bubble, JPMorgan said. These are sectors that “have more than tripled in price over a short period of time,” the bank explained.

These are the five sectors of the stock market that appear to be in a bubble, according to JPMorgan.

1. Clean Energy

Anything related to ESG has seen a boom in prices as investors continue to gravitate towards sustainable investing. Clean energy is one sector that comes top of mind to investors that are looking to invest in a green future, and the top holdings in the iShares Clean Energy ETF represent companies in the fuel cell and wind energy space.

Since its pandemic low last year, the ETF rallied as much as 324% in less than a year, meeting JPMorgan’s criteria for a potential bubble.

2. Solar Energy

The sector saw a strong boost as the prospects of a Joe Biden presidency and democratic-controlled Senate became more apparent. President Biden has pointed to solar as a core technology needed to combat climate change. The industry is expected to significantly benefit from Biden’s $2.2 trillion infrastructure bill.

Solar stocks staged a strong rebound after its pandemic low, with the Invesco Solar ETF rallying as much as 496% in less then a year.

Read more: We asked 5 renowned growth-fund managers for their favorite stock picks. These are the 4 that multiple managers think will crush the market going forward.

3. Electric Vehicles

Following the theme of clean energy and Biden’s green agenda, electric vehicles have staged monster rallies over the past year, mostly led by Tesla. Now, investors are holding out hope for more gains as Biden’s infrastructure bill includes $174 billion for the electric vehicle industry.

EV stocks have rallied by as much as 178% since its pandemic low last year, as measured by the iShares Self-Driving and Electric Vehicle ETF.

4. Cryptocurrencies

Bitcoin remain the most popular cryptocurrency, but thousands of other crypto assets exist, and many of them have seen marked price increases over the past year. Those crypto assets tend to move in tandem with bitcoin, which saw a more than 1,400% increase since last year’s pandemic low. The total market value for cryptocurrencies recently exceeded $2 trillion, and even XRP caught a bid as it faces a lawsuit from the US Securities and Exchange Commission.

While JPMorgan views cryptocurrencies in a potential bubble, the firm believes bitcoin could hit a long-term price objective of $130,000.

5. SPACs

The boom in SPACs over the past year has been unprecedented, as companies seeking to go public sidestepped the traditional IPO process in favor of the quicker and cheaper SPAC process amid the pandemic. In the first quarter of 2021, SPACs raised more money than the did in the entirety of 2020. Some estimates even suggest that the current stable of SPACs have more than $1 trillion in buying power. But the SEC is starting to set its focus on SPACs and the lofty earnings estimates firms are setting when going public.

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The stock market could soar 40% as the bull market enters its 3rd inning, Wharton professor Jeremy Siegel says

Jeremy Siegel Wharton CNBC
  • The bull market in stocks is just getting started, according to Wharton professor Jeremy Siegel.
  • Siegel said the stock market could surge 40% from here before it stages a 20% correction.
  • “I have never seen a Fed Chairman so dovish,” Siegel said of Jerome Powell in an interview with CNBC.
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The bull market in stocks is just getting started as it enters its third inning, Wharton professor Jeremy Siegel said in an interview with CNBC on Thursday.

Siegel said the stock market could surge 30%-40% from current levels before it stages a 20% correction. The bullish backdrop for Siegel is partly based on Fed Chairman Jerome Powell, who has been steadfast in recent weeks that the Fed is not planning to raise interest rates anytime soon despite growing evidence that a strong economic rebound from the COVID-19 pandemic is materializing.

A 30%-40% jump in the S&P 500 from current levels would see the index trade in a range of 5,322 and 5,731.

Siegel expects a strong inflationary year of 4% to 5% as increased demand and supply chain disruptions lead to a boost in prices. Powell views the expected jump in inflation as temporary.

“I have never seen a Fed Chairman so dovish,” Siegel said of Powell. Siegel expects that a rise in inflation and interest rates amid a booming economy will ultimately force the Fed’s hand, leading them to raise the fed funds sooner than expected.

But even in that environment, Siegel reminded viewers that in an economic environment dominated by a jump in growth, inflation, and interest rates, investors want to own stocks, which represent a claim on real assets like land, trademarks, and businesses.

“Enjoy this ride [because] it’s going to keep on going,” Siegel said of rising equities, before adding that he sees stock market gains extending through the end of 2021 at least. “I would not be cautious [on stocks] right now,” Siegel said.

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Big-money investors have dumped stocks for 4 straight weeks, even as major indexes hover near record highs

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US stocks have hit record highs in the past weeks – with the S&P 500 breaching 4,000 for the first time – as President Biden’s unprecedented stimulus plan has spurred renewed economic optimism.

Yet Bank of America revealed in a recent note that its institutional clients have been net sellers of shares over the past four weeks.

Communication-services stocks have been at the center of the trend, seeing several weeks of near-record outflows from all BofA client funds as the 10-year Treasury yield has climbed to more than one-year highs. The sector does, however, remain overweighted by actively managed funds.

Only two sectors saw inflows from BofA client portfolios overall: industrials and materials.

Meanwhile, private clients were buyers for the sixth week, though inflows have recently decelerated.

Buybacks by corporate clients have also slowed. The bank did note that the resurgence in buybacks in the first quarter could imply a new record for S&P 500 gross buybacks in 2021.

As for exchange-traded funds, the bank saw big buyers of equity ETFs year-to-date, especially broad market ETFs, which have seen inflows slow down every week for a month.

Growth ETFs saw outflows for the first time in four weeks.

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There’s $4.5 trillion in ‘firepower’ that could drive the stock market higher in April, Fundstrat’s Tom Lee says

Tom Lee
  • There’s $4.5 trillion in cash on the sidelines that could serve as the “firepower” needed to move the stock market higher in April, according to Fundstrat’s Tom Lee.
  • Since the start of the year, institutional cash balances have surged 9% to $3 trillion, according to Lee.
  • “Institutional investors are even more cautious now,” Lee said in a note on Sunday.
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The stock market’s recent rally will continue in April as $4.5 trillion in “firepower” makes its way into stocks, according to Fundstrat’s Tom Lee.

In a note on Sunday, Lee said “conditions [are] in place for a significant rally to continue into April.” Those conditions include a stronger-than-expected March jobs report, giving investors a bullish outlook for the US economy.

Additionally, Lee highlights that the COVID-19 vaccine rollout is well ahead of schedule as the US vaccinates on average 3 million people per day.

But the biggest driver of imminent stock market gains will likely be the significant rise in cash on the sidelines since the start of the year, according to Lee.

“Institutional investors are even more cautious now,” Lee said, pointing to a 9% increase in institutional cash balances since the start of the year. Institutions have raised $241 billion in cash and currently sit on a $3 trillion cash pile.

On top of that, retail investors have $1.5 trillion in cash.

“Pretty shocking rise in institutional money market cash balances [means] investors not bullish,” Lee said. The $4.5 trillion cash pile now represents “tons and tons of firepower” that “bodes well for April equity gains,” Lee added.

To capitalize off the potential future stock market gains, Lee advised investors to continue buying cyclical stocks that are poised to benefit from a reopening of the physical economy.

“The case for cyclicals is fundamentally attractive and has the most capacity to positively surprise,” Lee said.

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The breakout of the stock market to record highs is being affirmed by one of the oldest indicators on Wall Street

NYSE trader
  • The trend higher in the stock market is likely set to continue as one of the oldest indicators on Wall Street confirms the move higher.
  • Dow Theory is based on the relative price action of the Dow Jones Industrial Average and the Dow Jones Transportation Average.
  • Since mid-February, the Transportation Average has minted 14 new all-time highs, signaling more gains ahead for the broader market.
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One of the oldest indicators on Wall Street is signalling that the record highs made in the stock market over the past week are set to continue.

“Dow theory” is based on the writings of The Wall Street Journal co-founder Charles Dow and represents study of the intermarket relationship between the Dow Jones Industrial Average and the Dow Jones Rail Average, now called the transportation average.

The general idea is that both averages, over time, should move in tandem, given that the transportation average represents companies responsible for the movement of goods across the country. For that reason, it should serve as a leading indicator.

Put differently, both depend on each other: If the economy is thriving, transportation companies should also be thriving, as they are tasked with literally moving the economy.

Technical analysts look to Dow theory to confirm broad movements in the stock market. Specifically, traders look for confirmations and divergences between the two indexes.

A confirmation is when the transportation and industrial averages reach new highs (or lows), signaling that the trend in the broader market is up (or down). A divergence is when one of the two averages isn’t moving in tandem with the other.

Read more: BANK OF AMERICA: Buy these 14 semiconductor stocks poised to benefit from Biden’s multitrillion-dollar infrastructure plan – including one set to surge 39%

Since mid-February, the Dow Jones Transportation Average has minted 14 fresh all-time highs as investors anticipate strong economic growth amid a full reopening of the economy. And now, the broader stock market has finally caught up with it.

As the industrial average confirms the transportation average’s record high, traders will look for the primary uptrend to continue in the stock market.

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2 big reasons why the market is poised for a massive rally this week, according to Fundstrat’s Tom Lee

Trader
A potential “face rip” rally will be driven by the last trading day of March, Tom Lee said.

  • An explosive rally in the stock market could transpire over the next two days, according to Fundstrat’s Tom Lee.
  • Window dressing on the last day of the month by fund managers favors buying pressure in some of the most popular stocks, Lee said.
  • And the start of April on Thursday will likely be marked by inflows into equities as one of the strongest months of the year for the stock market begins.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The stock market is poised for a massive rally over the next two days as window dressing and strong seasonality begins to kick in, according to a Tuesday note from Fundstrat’s Tom Lee.

The potential “face rip” rally will first be driven by the last trading day of the month on Wednesday, in which fund managers participate in “window dressing,” Lee said. The practice of window dressing occurs when funds sell their losing stocks and buy the winning stocks to improve the image of their quarter-end holdings.

And on Thursday, strong seasonality should kick in as it’s the first trading day of April. Stocks typically see inflows on the first trading day of the month, according to Lee, and systematic funds want to be long stocks in April because it is on average one of the strongest months of the year for markets.

According to LPL Financial’s Chief Market Strategist Ryan Detrick, gains for stocks in April have been consistent, as “stocks have closed higher in April an incredible 14 out of the past 15 years.”

“We are literally facing a turning point, due to the above named factors, and add to the performance anxiety created by the past few weeks, and it is a set-up for a big chase higher,” Lee explained.

That performance anxiety refers to the $20 billion liquidation of Archegos Capital and the subsequent volatility that roiled a handful of stocks. Investors braced for more pain related to the unwinding of Bill Hwang’s family office, but the market has since shrugged off the event and investors that expected more volatility are likely ready to step in and buy stocks.

“I think this chase starts Wednesday [morning],” Lee concluded.

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Robinhood traders boosted the value of the stock market in the depths of the pandemic, but the rise of retail traders also means ‘extraordinary volatility’ may be the new normal, study says

Robinhood on cellphone
Robinhood app

Robinhood traders boosted the market’s recovery by adding 1% to the aggregate US stock market valuation in the second quarter of 2020, a study by the Swiss Finance Institute found. Traders also added 20% to the value of small-cap stocks.

The study, first reported by Bloomberg, also revealed that Robinhood traders had an impact five times the size of their assets in the second quarter. Retail traders on the platform, according to researchers Philippe van der Beck and Coralie Jaunin, also alleviated the stock market crash during the first quarter of last year by 0.6%. The paper was published in SSRN, a publisher of scholarly and academic research, in January 2021.

“The price impact of Robinhood traders is concentrated towards small-cap stocks and the consumer staples industry.” the pair wrote. “However, they are able to affect the price of some large companies, which are being held primarily by passive investors.”

The pair concluded that individual retail investors react more strongly to price changes.

“We show that when institutions react sluggishly to non-fundamental price changes, the mechanism stifles and retail demand shocks can have substantial impacts on stock prices,” the pair wrote.

Moving forward, the researchers found that if the role of Robinhood, “facilitated by novel fintech solutions,” continues to grow, the “extraordinary volatility observed during the pandemic may turn out to be the new normal.”

“The prominent role of Robinhood traders in driving returns evokes concerns about the future role of retail trading in equity markets,” the pair said.

The rapid rise of retail investors has been a powerful force in the stock market, enabled by a range of factors including commission-free trading, distribution of government stimulus checks, and heightened pandemic boredom as many people continue to work from home.

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Hedge funds vs. Chamath, plus finding gems in overlooked mid-cap stocks

Hello and welcome to Insider Investing. I’m Joe Ciolli, and I’m here to guide you through the current market and investing landscape. The newsletter will be taking a week off and returning on April 11. Here’s what’s on the docket:

If you aren’t yet a subscriber to Insider Investing, you can sign up here.

Have thoughts on the newsletter? Just want to talk markets? Feel free to drop me a line at jciolli@insider.com or on Twitter @JoeCiolli.


Check out our new investing e-book:

The definitive guide to picking long-term stock-market winners, according to America’s top-ranked fund managers.

Investing editor Akin Oyedele showcases eight star fund managers, their performance highlights, and their five biggest stock holdings.


Hedge funds vs. Chamath

iconq chamath palihapitiya

SPACs have been caught in a harsh sell-off along with growth stocks as bond yields rise. Billionaire Chamath Palihapitiya has been among those most affected, with short-sellers making $40 million betting against his SPACs year-to-date. We break down the wagers being made against Chamath’s three most high-profile SPACs.

Read the full story here:

Hedge funds are ramping up bets against Chamath Palihapitiya’s SPACs and have already taken home $40 million this year. Here’s a detailed look at the wagers they’re making.


The case for overlooked mid-cap stocks

Amy Zhang

Amy Zhang manages $11 billion across small- and mid-cap funds for Alger – one of which has generated a 138% return over the past year. She explains why the mid-cap equity space is teeming with opportunity, and shares 3 of her top stock picks.

Read the full story here:

A fund manager who’s returned 138% in the past year shares 3 mid-cap stocks poised to surge as the economic reopening accelerates – and breaks down why investors should consider this overlooked yet outperforming asset class


4 charts for the future

A trader waits for news while working on the floor of the New York Stock Exchange following a halt in trading in New York, July 8, 2015.  REUTERS/Lucas Jackson

David Keller is the chief market strategist at Stockcharts.com and an expert at technical analysis. We asked him what charts investors should be looking at now, and what they’re indicating assets might do going forward. He responded with four that he dissected in detail.

Read the full story here:

A chief market strategist shares 4 must-see charts that forecast the next big moves in stocks, bonds, and gold – and 6 trades set to surge on what happens next


Stock pick central

Seeking experts who are willing to name names? Look no further:

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US stocks rise as recovery optimism grows after new vaccine pledge from Biden

trader Gregory Rowe
NYSE trader Gregory Rowe works on the floor of the New York Stock Exchange at the end of the trading day.

  • US stocks opened mostly higher on Friday, buoyed by optimism over President Joe Biden’s new vaccine pledge.
  • Investors’ risk appetite returned as increased vaccine momentum points to a wider economic reopening by the summer.
  • Oil prices edged higher following news that it could take weeks to dislodged the container ship blocking the Suez Canal.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell

US stocks opened mostly higher on Friday, buoyed by optimism over President Joe Biden’s new goal of administering 200 million COVID-19 vaccine doses by his 100th day in office, doubling the original goal of 100 million doses.

Thus far, 25.7% or 85 million Americans have received at least one dose of the vaccine and 14% or 46.3 million have received two doses.

Investors’ risk appetite returned on Friday as a steady vaccine rollout would signal the economy could be on its way to a wider reopening by the summer.

Bank shares also rose on Friday after the Federal Reserve announced that banks can raise dividends and resume share repurchases after June 30.

On Thursday, US stocks closed higher after weekly jobless claims hit 684,000 their lowest levels since the pandemic began last year.

“We will very gradually over time and with great transparency when the economy has all but fully recovered, we will be pulling back the support that we provided during emergency times,” Powell told NPR Thursday.

Here’s where US indexes stood at the 9:30 a.m. ET open on Friday:

Goldman Sachs analysts on Friday said they remain bullish on US stocks, predicting a 10% increase in the S&P 500 from current levels over the next 12 months. The analysts also said they are positive about “procyclical” and non-US stocks, which are poised to benefit from global growth.

Cathie Wood’s ARK Autonomous Technology & Robotics ETF recently bought 800,494 shares in Jaws Spitfire Acquisition Corp, a SPAC backed by tennis champion Serena Williams. Among the fund’s biggest holdings are Tesla, JD.com, Baidu, and Alphabet.

Nio fell 8% after it said it will temporarily halt production at its JAC-NIO manufacturing plant in Hefei, China for five working days

Bitcoin climbed back above the $51,000-level it was on Thursday evening to $53,029. Traders are bracing themselves ahead of the record $6 billion bitcoin options set to expire Friday.

“The expiry data suggests a bullish outlook,” said Pankaj Balani, CEO at Delta Exchange. “Currently, Delta Exchange is seeing bullish price signs for bitcoin and this is based on the March futures pricing.”

Oil prices edged higher, rebounding from Thursday’s fall, following news that it could take weeks for experts to dislodged the massive 220,000-ton container ship blocking the Suez Canal.

JPMorgan’s chief global strategist Marko Kolanovic on Thursday said if this situation is not resolved soon, investors and consumers can expect shipping rates to soar, energy commodities to further increase, and global inflation to continue to rise.

He did add that these risks can be hedged by buying oil and associated equities such as energy and shipping.

The Suez Canal, the second-biggest shipping channel in the world, is a key shipping route for crude and refined products, connecting Europe to Asia and has wreaked havoc on global maritime trade.

West Texas Intermediate crude climbed as much as 2.82%, to $60.21 per barrel. Brent crude, oil’s international benchmark, also rose by 2.55%, to $63.53 per barrel. Both benchmarks are on track for weekly losses.

Gold slipped 0.55% to $1,725.12 per ounce.

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The bull market in stocks is heading into its second year, and history suggests a 17% gain could be in store

NYSE trader
  • This week is the one-year anniversary of the end of the fastest bear market on record and the start of a new bull.
  • With the bull market about to enter its second year, LPL looked at historical data to gauge how stocks may trade over the next 12 months.
  • The second year of a bull market tends to build upon its gains, rising an average 17% following a bear market decline of more than 30%, according to LPL.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

It’s been one year since the stock market found its bottom amid the fastest bear market on record, in which the S&P 500 fell more than 30% amid the COVID-19 pandemic.

One year later, the bull market in stocks is alive and well, with the S&P 500 rising as much as 75% to new record highs since the bear market low on March 23, 2020. That’s the strongest start to a new bull market on record, according to data from LPL.

Now entering its second year, the bull market will likely build upon its gains and continue to move higher with some volatile swings along the way, according to a Monday note from LPL.

Since World War II, bull markets that began after a sharp bear market decline of more than 30% saw average second year gains of 17%, LPL highlighted. But a pickup in volatility is likely, with an average 10% sell-off in the second year of a bull market, according to historical data analyzed by the firm.

The bull market that began in 2009 saw a similar start to the current bull run, gaining 69% in its first year. In its second year, stocks managed to gain 16% despite suffering a brief 17% sell-off.

“Considering the current bull market reflected the best start to a bull market ever, this could open the door for an above-average pullback during year two,” LPL said.

If an above-average pullback does occur during the second year of the current bull market, LPL recommends investors consider “buying the dip”. The firm has high confidence in stocks due to the current pace of vaccine distribution, fiscal and monetary stimulus, and a robust economic recovery.

And as to whether a rise in interest rates will lead to a large contraction in stock valuations, “we see that as unlikely,” LPL said. The firm reiterated its year-end S&P 500 price target of 4,100, representing potential upside of 5% from Friday’s close.

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