The recent tech sell-off creates a ‘massive buying opportunity’ with another 30% jump for the sector possible in 2021, Wedbush says

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  • The recent decline in tech stocks has created a “massive buying opportunity” in the sector, according to Wedbush analyst Dan Ives.
  • Ives said he believes another 30% jump in tech names is possible in 2021.
  • The analyst argued that 30% to 40% of employees could eventually be permanently remote, adding fuel to the digital transformation.
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The recent decline in tech stocks has created a “massive buying opportunity” as another 30% jump in the sector is possible over the next 12 to 18 months, according to analysts at Wedbush Securities.

In a note to clients late Thursday, Wedbush analyst Dan Ives said he believes the current tech stock sell-off has run too far.

“The momentum names in tech are down anywhere from 15% to 25%+ this week and in our opinion, this sell-off is way overdone given the $2 trillion of digital transformation spending on the horizon coupled by a massive M&A spree set for the next few years in the tech space,” Ives said.

This past week’s tech-stock weakness pushed a popular exchange-traded fund that tracks the Nasdaq 100 index below key support levels on Thursday. Popular tech names like Tesla and Microsoft led sector losses throughout the week, falling roughly 10% and 4% respectively.

Much of the decline was caused by a sell-off in government bonds that intensified over the week.

The yield on the 10-year US Treasury note, which acts as a benchmark for global borrowing rates, climbed to 1.54% on Thursday following Federal Reserve Chair Jerome Powell’s comments. This led to further rotation out of the highly valued tech sector into more cyclical stocks in the energy and financial sectors.

Wedbush’s Ives said he sees the tech sell-off as a “golden opportunity” and argues the “digital transformation across the enterprise and consumer world is just in its first few innings.”

While some analysts and investors have said tech stocks market leadership is fading, Ives believes the post-pandemic reopening won’t hurt tech companies to the extent that some might argue.

The analyst said his team spoke to CEOs around the world who told them that “30%-40% of employees could be remote in a semi-permanent structure.” Ives said this will “put further pressure on CIOs to rip the band-aid off and go aggressive on a cloud/digital transformation roadmap the next few years.”

Ives and company highlighted several tech names that they believe offer considerable upside in his note including Microsoft, Docusign, Salesforce, Zscaler, and Apple.

Despite recent tech weakness, Wedbush “believes tech stocks have another 30% upward move in the cards” in 2021 led by “FAANG, cloud, and cybersecurity names.”

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The ‘most aggressive’ areas of the stock market could be set for more gains as spiking bond yields shuffle portfolios, a Wall Street chief strategist says

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  • The reversal of a multi-year trend could have been accelerated this month as interest rates spiked higher, according to a note from Leuthold Group’s James Paulsen.
  • Investor fund flows have started to favor stocks over bonds, which hasn’t happened in years.
  • “When fund flows have shifted toward stocks, it has typically led to leadership from the market’s ‘most aggressive’ sectors,” Paulsen said.
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Rising interest rates sparked a volatile week of trading for the stock market, but it could also be accelerating the reversal of a multi-year trend that suggests more long-term upside ahead for stocks, according to Leuthold Group’s James Paulsen.

As interest rates rise, bond prices fall, which often sparks current fixed income investors to question whether they own too much of the asset class and not enough stocks, Paulsen said in a note on Thursday.

And there are likely a lot of investors asking that question right now, given that over the past decade, fund flows have overwhelmingly favored bonds over stocks. Even since the start of 2019, bonds have seen cumulative fund inflows of more than $1 trillion, while stocks have seen cumulative outflows of about $600 billion. 

And according to Fundstrat’s Tom Lee, 94% of retail fund flows have gone into bonds rather than stocks since 2008.

But more recently, this trend has reversed, with stocks seeing an uptick in inflows at the expense of bonds.

“This newfound trend of investment flows probably has a long way to go,” Paulsen said, and if so, the stock market should find strong support from the new money pouring into equities.

Sectors that have led the market higher during a sustained trend of fund flows into equities are the “most aggressive,” according to Paulsen.

If cumulative fund flows into stocks turn positive, “not only could the stock market continue to surprise to the upside,” but the most aggressive sectors might keep leading the market higher, Paulsen concluded. 

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2 sectors will be ‘clear winners’ in the event of a sell-off following Biden’s $1.9 trillion stimulus plan, BofA says

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Traders work during the closing bell at the New York Stock Exchange (NYSE) on March 18, 2020 at Wall Street in New York City


The stock market has largely priced in Washington’s $1.9 trillion stimulus plan already and investors should anticipate a “sell the news event” once the bill is passed, according to Bank of America.

A group of strategists led by Savita Subramanian said in a note Friday that cyclical stocks and small caps will be “clear winners” in the event of a stimulus-induced sell-off. 

Cyclical and small caps are highly GDP-sensitive and still trade at a steep discount, said BofA. In comparison, large-cap consumer discretionary and information technology stocks are priced to the downside.

Most of BofA’s indicators suggest that stocks are currently pricing in a lot of good news. For example, the ratio of the S&P 500 market capitalization and the M2 money supply is at its highest point since Feb 2020, and well above the post-financial crisis average as optimistic investors pile their cash into stocks.

According to the strategists, the ratio currently indicates that over $3 trillion in stimulus may already be priced in.

Bank of America also warned that stocks are currently pricing in a 1.4% yield on the 10-yr treasury. If that rate is to move up to 1.75% by the end of 2021, the long-standing “TINA” mantra that proposes “there is no alternative to equities” may be at risk.

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Cryptocurrencies and SPACs show signs of ‘irrational exuberance,’ but the stock market is not in a bubble, says UBS

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Traders working on the floor of the New York Stock Exchange are blur in this time exposure, just before the opening bell, 11 May, 2004.

  • UBS’s Mark Haefele said in a Friday note that while cryptocurrencies and SPACs show signs of “irrational exuberance,” investors shouldn’t worry that the whole stock market is in a bubble. 
  • Within the IPO and SPAC market and cryptocurrencies, prices are discounting future rapid price appreciation, a factor that’s typically present during market bubbles, said Haefele.
  • But large parts of the stock market are not expensively valued by historical comparison, the chief investment officer of global wealth management said. 
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While many parts of the market are showing signs of  “irrational exuberance” that should alarm some investors, UBS’s Mark Haefele says there are still some risk assets outside of bubble territory.

“All of the bubble preconditions are in place,” he explained in a Friday note, citing record low financing costs, new participants entering into the market, and a combination of historically low interest rates and high savings rates from government stimulus that’s left investors who are searching for returns with no alternative but equities.

However, Haefele said that while parts of the market seem speculative, investors shouldn’t worry that the whole market is in a bubble.

“The cryptocurrency markets are exhibiting signs of excessive speculation and the IPO/SPAC markets are the hottest in two decades. But these markets do not yet pose a broader systemic risk,” the chief investment officer of global wealth management said.

Within the IPO and SPAC market, as well as crypto, prices are discounting future rapid price appreciation, a factor that’s typically present during market bubbles, said Haefele.

Speculation is pushing up prices for bitcoin, especially as major investors raise their long-term price targets for the coin, like Guggenheim’s Scott Minerd who sees bitcoin hitting $400,000 in the future.

Read more: GOLDMAN SACHS: Buy these 25 stocks best-positioned to juice profits in 2021 as stimulus and vaccine progress spur economic growth

First-day IPO performance is also the strongest in around two decades. Airbnb leaped 115% on its first day of trading, while DoorDash opened 78% higher than its offer price. SPACs raised more than $70 billion in 2020, more than the entire prior decade combined, he said.

But equities as a whole are not in a bubble, said Haefele. For one, he explained that large parts of the market are not expensively valued by historical comparison. Removing Facebook, Amazon, Apple, Microsoft, Netflix, and Google, the S&P 500 only rose 6% in 2020. 

He also said that valuations of indices look reasonable against the backdrop of low interest rates, and used an equity risk premium approach to explain why stocks still look cheap relative to bonds. 

Against that backdrop, he recommends investors “think beyond the bubbles.”

“One reason that bubbles can be so deceptive is that there is often a grain of truth behind their narratives. The dotcom bubble, for example, correctly anticipated the impact of the internet,” said Haefele. “Many of the narratives linked to today’s bubbles may also prove to be correct. Investors may be able to capture some upside but reduce the risk associated with bubbles by identifying the narrative, yet investing in a more diversified way.” 

He reiterated his suggestion to investors to buy emerging technology investment themes like 5G, fintech, greentech, and healthtech, while staying diversified. He also said UBS is bullish on emerging market stocks.

Read more: ‘Extremes are becoming ever more extreme’: A Wall Street strategist who sounded the alarm before last year’s 35% crash showcases the evidence that a similar meltdown is looming

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A majority of investors believe the stock market is in a bubble – and many fear a recession, according to an E*Trade survey

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Traders and company executives gather for the Uber Technologies Inc. IPO on the trading floor of the New York Stock Exchange (NYSE) in New York, U.S., May 10, 2019.

  • A new E*Trade Financial survey of 904 active investors revealed that 66% of them believe the stock market is either fully or somewhat in a bubble. An additional 26% said the stock market is “approaching a market bubble.” 
  • The survey also revealed that recession fears linger. 32% of investors listed a recession as their top portfolio risk right now. 
  • This comes as US stock indices fly past records and major investors like Jeremy Grantham are voicing their bubble concerns. 
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Most investors believe the stock market is in bubble territory according to a new survey from E*Trade Financial.

Out of 904 active investors who manage at least $10,000 in an online brokerage account, 66% of them think the market is either fully or somewhat in a bubble, according to E*Trade. An additional 26% said the stock market is “approaching a market bubble,” while only 8% said stock valuations are “not close to a market bubble.”

The survey also revealed that recession fears linger. 32% of investors listed a recession as their top portfolio risk right now.

Bubble fears have come into sharper focus as stock valuations soar. Individual stocks like Tesla have ballooned, but the broader market is higher than average as well. The S&P 500 gained 16% in 2020, while the Nasdaq soared 43%. 

British investor Jeremy Grantham said on Tuesday that the stock market is in a “fully-fledged epic bubble,” driven by extreme overvaluations, explosive price increases, frenzied issuance, and “hysterically speculative investor behavior.” 

Read more: Bank of America says the warning signs that stocks are hurtling into bubble territory are growing – and pinpoints 6 that could signal a bear market is beginning

Mohamed El-Erian said on Thursday the market is in a “rational bubble,” propped up by investors confident in the Fed’s continued support.

Despite bubble concerns, bullish sentiment for investors has climbed. 57% of the surveyed investors said they’re “bullish,” which is up 5 percentage points from last quarter’s survey. 

“Investors see that unprecedented fiscal stimulus, the Fed’s easy monetary policy, the vaccine rollout, and relatively healthy earnings are all positives for the market,” said Mike Loewengart, Managing Director of Investment Strategy at E*Trade Financial. “Yet at the same time there is awareness that some, if not all, of these factors may already be priced in, and market corrections are a matter of when, not if.”

The survey was conducted from Jan.1 to Jan. 7, 2021 among an online US sample of 904 self-directed active investors who manage at least $10,000 in an online brokerage account. 

Read more: The CIO of a $500 million crypto asset manager breaks down 5 ways of valuing bitcoin and deciding whether to own it after the digital asset breached $40,000 for the first time

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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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