The S&P 500 will climb another 10% as the Democrat-controlled government passes new stimulus, Credit Suisse says

US capitol
  • Credit Suisse analysts lifted their S&P 500 target to 4,200 from 4,050 on Thursday, citing Democrats’ victories in Georgia Senate runoff elections as key to ushering in additional fiscal stimulus.
  • The new target implies a roughly 10% climb from current levels.
  • The bank expects President-elect Biden to pass fresh fiscal support that includes another round of direct payments for Americans.
  • New stimulus “will further fan these flames” of pent-up consumer demand as the economy reopens, the team added.
  • Visit the Business Insider homepage for more stories.

Democrats’ upcoming control of the US Senate paves the way for a new fiscal stimulus and healthy stock-market returns throughout 2021, Credit Suisse analysts said Thursday.

The team led by Jonathan Golub lifted its 2021 S&P 500 price target to 4,200 from 4,050 in a note to clients, implying a roughly 10% rally from current levels. The bank expects the index’s earnings-per-share to climb to $175 this year and reach $200 by the end of 2022.

Jon Ossoff and Raphael Warnock’s victories in Georgia Senate runoff elections bring Democrats’ seat count in the legislative body to 50, meaning any ties will be broken by Vice President-elect Kamala Harris. The shift in power gives Democrats unified control of the government for the first time since 2011 and gives Biden a far easier path for passing progressive policy.

Fresh fiscal support is likely among the President-elect’s first initiatives when he takes office later this month, Credit Suisse said. Democrats are poised to push for another round of direct payments, an extension to unemployment benefits, state and local government aid, and relief for healthcare workers.

Read more: A growth fund manager who’s beaten 96% of his peers over the last 5 years shares 6 stocks he sees ‘dominating their space’ for the next 5-10 years – including 2 that he thinks could grow 100%

A stronger stimulus response, when combined with a swift reopening, can accelerate the country’s economic rebound, the team of analysts said.

“While the timeline for vaccination rollouts has proven underwhelming, the likely avalanche of pent-up consumer demand cannot be ignored. Any additional stimulus will further fan these flames,” they added.

The bank upgraded several cyclical sectors to “overweight” from “market weight,” including industrials, materials, and consumer discretionary stocks. The groups are among those best positioned to benefit from the start of a new economic expansion and a return to pre-pandemic levels of activity, according to the bank.

The team downgraded the tech, consumer services, and internet retail sectors to “market weight” from “overweight.” Health care and financial stocks remain the bank’s “highest conviction overweights.”

Several other Wall Street giants similarly upgraded their outlooks for stocks and the US economy following Georgia’s elections. Bank of America economists said Wednesday that another $1 trillion in stimulus can “easily” boost US economic growth by one point to 6% in 2021.

Goldman Sachs lifted its 2021 growth estimate to 6.4% from 5.9% on Thursday, citing its expectation for a $750 stimulus package being passed in the first quarter.

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

Here’s why stocks are at record highs following the Capitol chaos in DC

US service sector expands at fastest pace since September as holiday season lifts activity

Deutsche Bank says buy these 14 beaten-down financial stocks poised for a bullish recovery from 2020’s ‘savage sell-off’ – including one that could rally 30%

Read the original article on Business Insider

Business Insider’s 6 best investing stories of 2020

Dear Readers,

It’s been an unprecedented year in countless ways, and the extreme volatility seen in the stock market was no exception. After suffering the swiftest bear-market plunge in history, US equities recouped those losses in mere months and now sit near all-time highs.

Most major events (the worst recession in 100-plus years, negative oil prices) were byproducts of the coronavirus outbreak. But some (repeated yield-curve inversions in early 2020, the US presidential election) weren’t. There were so many forces to contend with that you’d be excused for forgetting some of them were even in play.

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

Ever the safety net, the Investing team at Business Insider was with you every step of the way, dissecting the vicious fluctuations while simultaneously telling you how to adjust your portfolios and capitalize on the chaos.

To that end, we’ve selected the six best Investing stories of the year. Enjoy the selection below, and we’ll see you back here in your inbox on the first Tuesday after the holidays.

Thanks for reading!

— Joe


(1) We spoke with Wall Street’s 9 best-performing fund managers of 2020 to learn how they crushed the chaotic market – and compile the biggest bets they’re making for 2021

Business Insider spoke to the nine top-performing US mutual fund managers of the year, based on their performance through November 6. They shared insights into investing strategies and stock picks that prevailed through the crisis, and shared their top trade ideas for 2021.


(2) Inside Eagle Investors, the 20,000-member online community run by 2 Indiana University students that’s helping spearhead the Gen Z day-trading revolution

Indiana University undergraduates Vishu Namburi and Ishaan Sandhir created Eagle Investors in July 2019, hoping to form a tightly knit community of options traders.

Pandemic-fueled market volatility drove much of Eagle Investors’ expansion, and both moderators and clients have made money along the way. But the group’s rapid growth presents a challenge for the founders who strive to maintain closeness within the community while still making space for new members.


(3) Nancy Zevenbergen is in the top 1% of investors over the past 5 years. She breaks down what she looks for in young companies – and shares 4 stocks she thinks could be market leaders 10 years from now.

Nancy Zevenbergen – founder of Zevenbergen Capital Investments, which has about $5 billion in assets – has a knack for investing early in companies that see extraordinary growth. She detailed for Business Insider her market-beating approach to investing, and shared four stocks she thinks could be the next market leaders.


(4) 14 Wall Street experts told us the single metric they’re each watching to assess coronavirus market fallout – and give their portfolios a leg up

Business Insider asked 14 investment strategists and analysts in April to share one crucial metric, index, or signal they’re closely tracking as the novel coronavirus throws markets and economies into disarray. Their answers illustrate where experts have been looking to gauge the way forward for markets and the economy.


(5) Robert Shiller, Rick Rieder, and 18 more of the brightest minds on Wall Street reveal the most important charts in the world

In February, amid the onset of the coronavirus pandemic, Business Insider asked 20 financial experts – including Nobel-winning economists and acclaimed investment chiefs – to share charts that capture the biggest trends in markets.

The charts included illustrate opportunities for the decade ahead, potential catalysts for the next economic recession, and other big themes that will inform where investors should be putting their money now.


(6) The ultimate guide to getting started in real-estate investing – according to entrepreneurs who built multimillion-dollar empires from scratch

The most successful investors are highly adaptable. Take Jacob Blackett, the CEO of Holdfolio and founder of SyndicationPro, for example. He lost $70,000 on his first deal, but has since amassed a portfolio of 1,000 units.

The best ones are also rigorous about choosing the right strategy, methodology, and location for their investments. To aid your own decision-making, we’ve centralized months of reporting on real-estate investing trends into a single guide.

Read the original article on Business Insider

Fundstrat’s Tom Lee says another epic rally in stocks hit hardest by COVID-19 could be coming soon

Hilton Hotel
  • Fundstrat’s Tom Lee said stocks in sectors hit hardest by the pandemic like travel and retail may be due for a rally. 
  • The head of research explained that the third wave of COVID-19 cases may be peaking in the US. When this happened after the second wave, epicenter stocks rallied shortly after, he said.
  • “From a market’s perspective, a rolling over of COVID-19 should be a “risk-on” signal for epicenter stocks,” said Lee. “The reason, naturally, is that epicenter stocks are more sensitive to lockdowns and benefit from economic re-opening.
  • View Business Insider’s homepage for more stories.

History shows that another rally for stocks hit hardest by the pandemic could be on the way. 

That’s according to Fundstrat’s Tom Lee, who wrote in a note to clients on Monday that “epicenter stocks,” or stocks in sectors like travel, retail, and services, could be poised to gain in the near future. 

The head of research explained that the third wave of COVID-19 cases may be peaking in the US. When this happened after the second wave, epicenter stocks rallied shortly after, he said. 

“From a market’s perspective, a rolling over of COVID-19 should be a “risk-on” signal for epicenter stocks,” said Lee. “The reason, naturally, is that epicenter stocks are more sensitive to lockdowns and benefit from economic re-opening. Hence, we should expect the epicenter stocks to rally.”

Read more:RBC unveils its 15 top biotech stock ideas for 2021 as the sector is poised to take off on the back of pandemic-related innovations and new funding

Lee said that the percentage of the US with declines in COVID-19 cases is at 62%. That’s the highest level since August. He also noted a recent comment from former FDA commissioner Dr. Scot Gottlieb, who said on Sunday that COVID-19 cases may be peaking nationally. This thinning out of cases could be a good sign for stocks that hinge on an economic reopening. 

Although this could be a temporary rollover of cases, and holiday gatherings could cause a spike in cases, Lee said COVID-19 is still rolling over earlier than he expected.  

Names in his basket of epicenter stocks include travel companies like MGM Resorts, Hilton Worldwide, Marriott, Norwegian Cruise Line, and Royal Caribbean, retailers including AutoNation, Harley-Davidson, Hasbro, L Brands, and Best Buy, and restaurants like Darden Restaurants and Starbucks.

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

Zoom could soar another 57% as work-from-home will continue long after the pandemic era, says a senior stock analyst

FILE PHOTO: Small toy figures are seen in front of diplayed Zoom logo in this illustration taken March 19, 2020. REUTERS/Dado Ruvic/Illustration
Small toy figures are seen in front of diplayed Zoom logo

  • D.A. Davidson’s Rishi Jaluria believes Zoom will be an essential product long after the coronavirus vaccine is deployed and workers return to offices. 
  • The managing director and senior research analyst told CNBC on Wednesday Zoom could surge another 57% to $600 following its incredible rally this year. 
  • No one is going to be a hundred percent remote or 100% in the office, and I think zoom for example, is a critical part of making that happen,” the analyst said.
  • Shares of Zoom slipped as low as 6.9% shortly after the Wednesday opening bell. 
  • Watch Zoom trade live here.

D.A. Davidson’s Rishi Jaluria believes Zoom will be an essential service long after the coronavirus vaccine is deployed and workers return to offices. The managing director and senior research analyst told CNBC on Wednesday Zoom could surge another $600, a 57% upside from current levels, following a massive rally this year.

Jaluria explained that the nature of work has been “irreversibly changed” by the coronavirus pandemic, and he anticipates that the future of work will be a hybrid of remote and in-person activity.

“No one is going to be a hundred percent remote or 100% of the office, and I think zoom for example, is a critical part of making that happen,” the analyst said.

If investors had to name one stock of the year for 2020, it’d likely be Zoom. The virtual conferencing software company skyrocketed roughly 500% this year as video calls went from a less-adequate substitute for a “real” meeting to the only way to conduct business. 

After such an massive rally, some investors may be doubtful that the stock could go any higher. But Jaluria said the benefits of Zoom will be long-lasting. 

Read more:We spoke to short-seller Rob Majteles, who says he was ‘wrong early’ on Tesla, but he still believes the market is due an ‘extraordinary reassessment’

Zoom has pared back some gains from its highs in October, and Jaluria said now is a great buying opportunity for the company. Shares dropped 6.9% shortly after the open on Wednesday to as low as $380.

The analyst added that he sees opportunities in other work-from-home stocks including Fastly, Twilio, Docusign, and RingCentral, which are all providing necessary services for enabling the hybrid work future, he said.

“I do think a lot of these names have a good amount of upside, especially because I feel like the market is starting to actually trade down a lot of these work from home names because they think post pandemic, that benefit fades away,” said Jaluria. “And as we think about this future of work, I think it’s fair to say that these benefits aren’t short-term, they are very long lasting [and] irreversible.” 

Read more:UBS says buy these 20 discounted small-cap and mid-cap stocks expected to take off in 2021 – including one that could rally 60%

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SEC chief Jay Clayton says he is nervously eyeing retail-driven euphoria in the stock market

FILE PHOTO: Jay Clayton, Chairman of the U.S. Securities and Exchange Commission, speaks at the Economic Club of New York luncheon in New York City, New York, U.S.,September 9, 2019. REUTERS/Shannon Stapleton
FILE PHOTO: Jay Clayton, Chairman of the U.S. Securities and Exchange Commission, speaks at the Economic Club of New York luncheon in New York City

  • Chairman of the Securities and Exchange Commission Jay Clayton told CNBC on Thursday he’s concerned about stock market euphoria stemming from retail investors. 
  •  “When stocks run away… we do get concerned because it is a situation where professional investors understand this, I do worry that retail investors do not understand that trees don’t grow to the sky,” Clayton added. 
  • His concerns come as all three major indexes hovered around record highs on Friday.
  • Visit the Business Insider homepage for more stories.

Chairman of the Securities and Exchange Commission Jay Clayton told CNBC on Thursday he’s concerned about stock market euphoria that’s stemming from retail investors.

“We are in a situation where with mobile communications, access, and the like, there is a new paradigm. There are more retail investors participating in the market than ever before,” Clayton said.

“One thing we don’t regulate directly…is euphoria and we’re seeing some euphoria here,” he added. 

His concerns echo those of Goldman Sachs CEO David Solomon, who said earlier this week he’s also worried about retail investors driving the market to dizzying new heights. Both pointed to the hot IPO market. Airbnb, for example, leaped 115% on its first day of trading. On Friday, all three major indices hit all-time highs.

Read more:3 ETF executives break down the various ways to invest early in the global 5G boom as it grows to unlock $13.2 trillion in value by 2035

“When stocks run away… we do get concerned because it is a situation where professional investors understand this. I do worry that retail investors do not understand that trees don’t grow to the sky,” Clayton added.

His interview comes as the SEC charged Robinhood with misleading customers on the revenue from trades resulting in a $65 million settlement, as well as a complaint from the Massachusetts securities regulator stating that the trading app encouraged inexperienced investors to execute frequent trades.  

 

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.

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Airbnb and DoorDash’s post-IPO stock pops represent an ‘epic level of incompetency,’ says a former banker who led one of the world’s largest IPOs ever

Imran Khan
  • Imran Khan told CNBC on Tuesday that the recent post-IPO stock pops including those of Airbnb and DoorDash represent an  “epic level of incompetency” from the bankers who underwrote the stocks.
  • The former banker, who led Alibaba’s IPO in 2014, said that it’s the job of the bankers to understand the market and price the IPO’s correctly: “Why are you getting paid 5 to 6% if you can’t figure that out?” Khan asked.
  • “When the stock doubles for a very high large market cap company, clearly something didn’t work right here,” he added.
  • Shares of both Airbnb and DoorDash skyrocketed after their public debuts.
  • Visit the Business Insider homepage for more stories.

Imran Khan told CNBC on Tuesday that the recent post-IPO stock pops including those of Airbnb and DoorDash represent an “epic level of incompetency” from the bankers who underwrote the stocks. 

The former banker who led Alibaba’s IPO in 2014 said that it’s the bankers job to understand the market and price the IPO’s correctly. Right now, bankers could be doing a “much better job,” said Khan. Airbnb leaped 115% on its first day of trading-its IPO offering price was $68, but it went on to hit an intraday high of $165. Meanwhile, DoorDash opened at $182 on its public debut, 78% above its initial-public-offering price of $102.

Khan also said that DoorDash and Airbnb were not obscure companies, and that bankers should have known better.

“Why are you getting paid 5 to 6% if you can’t figure that out?” Khan asked.

Read more:A JPMorgan income fund manager shares 12 high-dividend stocks set to gain from a broad cyclical recovery – and unpacks the strategy he uses to beat 93% of his peers

“When the stock doubles for a very high large market cap company, clearly something didn’t work right here,” he added. 

Khan was also the chief strategy officer of Snapchat during its 2017 IPO. SNAP gained as much as 52% on its first day of public trading.

The Verishop founder and CEO said that these that these stock pops are causing investors to lose confidence in the IPO process. He doesn’t think the system of bringing companies to market is broken, but he said bankers could perform better.

“I think when the market gets really busy, a lot of the times bankers get really focused on chasing deals and client management, as opposed to doing their job,” said Khan. 

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
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Goldman Sachs CEO says he’s concerned about stock-market euphoria stemming from retail investors

David M. Solomon, President and Co-Chief Operating Officer of Goldman Sachs, speaks during the Milken Institute Global Conference in Beverly Hills
David Solomon, CEO of Goldman Sachs, speaks during the Milken Institute Global Conference in 2017.

  • David Solomon told CNBC on Tuesday he’s concerned about euphoric activity in the stock market being driven by retail investors buying IPOs.
  • “I do think we’re at a moment in time where there’s a lot of euphoria. I personally am concerned about that. I don’t think in the long run that’s healthy,” the Goldman Sachs CEO said.
  • The euphoria was especially visible in the IPO market last week: Airbnb leapt 115% in its first day of trading, while DoorDash soared 86% following its debut. 
  • “There’s a lot of retail participation in a bunch of these IPOs,” Solomon added. “I think that’s something to watch, something to be cautious about.”
  • Visit the Business Insider homepage for more stories.

David Solomon told CNBC on Tuesday he’s concerned about euphoric activity in the stock market that is being driven by retail investors buying IPOs.

” I do think we’re at a moment in time where there’s a lot of euphoria. I personally am concerned about that. I don’t think in the long run that’s healthy. I think it will rebalance over time as it always does,” the Goldman Sachs CEO said.

Euphoria was especially visible in the IPO market last week with two high-profile IPOs. Airbnb surged 115% during its public debut, while DoorDash soared 86% as it began trading. Those offerings defied many observers’ expectations, and Solomon isn’t alone in his concerns that the market is getting too hot. The Goldman chief executive sees retail activity spiking due to technology that’s made investing and trading more accessible.

“There’s a lot of retail participation in a bunch of these IPOs,” Solomon added. “I think that’s something to watch, something to be cautious about. I think a bunch of these are great businesses, but obviously, the market at the moment is pricing in, you know, perfect execution and enormous growth for a very long period of time. And my guess is there’ll be a rebalancing of that over time for sure.”

Read more: A JPMorgan income fund manager shares 12 high-dividend stocks set to gain from a broad cyclical recovery – and unpacks the strategy he uses to beat 93% of his peers

The banking icon also said that the current stock market is appropriately looking forward and acknowledging that the pandemic will at one point be beyond us.

“There’s certainly been a meaningful recovery in the economy but there’s still a ways to go. I think we’ve replaced about 75% of the economic output that we lost when we shut down the economy in March and April and so I do think we see the light at the end of the tunnel.” 

Solomon added that the Fed’s policy actions in the beginning of the pandemic were necessary and staved off a situation that could have been much worse, but they’re not without consequences. Now, people are far out on the risk curve and that’s inflating asset prices, as seen in recent IPOs, Solomon said. 

“Cheap money has an impact,” said the CEO. 

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