Dizzying ratings, checkout mania checkboxes on the bubble checklist

Photographer: Michael Nagle / Bloomberg

The stock market is manic. Stocks have not been as expensive since the point era as. The Nasdaq 100 has doubled in two years, leaving its valuation inflated, although volatility remains stubbornly high.

It’s a setup that leaves investors assured of serious returns from 2020, a year that challenged an easy explanation. It is also one that has a growing cohort of experts warning of one bubble.

Knowing when market concentrations go from logical to excessive is always difficult. It was almost impossible when it ended 2020, with interest rates set at zero and the federal government unleashing $ 900 billion more on the economy. But history offers clues and a set of currents market conditions meet criteria that would likely be on a bubble checklist.

Do a study published in 2019 by researchers at Harvard University pointed out that while not all stock rises are in disasters, those that share some attributes, such as rising stock issues, higher volatility, and a sector or index that doubles and is double than the wider market. Check, check and almost check.

“Are there areas of the market that are in a bubble? Yes, of course, ”said Peter Cecchini, founder of AlphaOmega Advisors LLC, told Bloomberg’s “What Goes Up.” podcast, adding that “many of these companies are obviously tech speculative.”

Stock issuance, initial public offerings and companies with blank checks have grown so popular that record after record fell in 2020. US companies sold $ 368 billion in new shares last year , 54% more than the previous maximum, according to data collected by Bloomberg.

OPC raised $ 180 billion, most of the history, as companies like Snowflake Inc., Airbnb Inc. and DoorDash Inc. they took advantage of the rebound in equity markets. According to Bill Smith, CEO and co-founder of Renaissance Capital LLC, Bill Smith, CEO and co-founder, showed that the news of the first day of action among newcomers was the most important in two decades.

“These are telltale signs,” said Robin Greenwood, a Harvard Business School professor and co-author of the 2019 study. “The probability of a market correction is much higher today than on the historical average.”

An OPI subclass also came out in 2020, which added concerns. Special-purpose acquisition vehicles, which use proceeds from the sale of shares to acquire a private company, raised about $ 80 billion in 2020, more than had accumulated over the previous decade. According to research by George Pearkes, Bespoke Investment Group’s global macro-strategy, the SPACs they bought increased approximately 100% during the year.

“This is a pretty bubbly thing,” he wrote in a recent note, though he added that what is “most notable” is that SPACs that have not yet announced bids have earned about 20%. “Obviously, this is pretty speculative behavior.”

While some assets are showing worrying signs, the market in general may not be in a position to provoke immediately. On the one hand, the Federal Reserve has committed itself to keeping interest rates set close to zero, making valuations of the shares drawn. it seems more reasonable when compared to bond yields.

And Harvard researchers say the Nasdaq 100, although in a historic race that has seen its price double in just two years, is still not exorbitantly high relative to the S&P 500 index, compared to previous bubbles . The broader indicator has increased by 50% since 2018 and not enough is being tracked with enough technology indicator to meet its criteria.

Bubble Talk has been on fire for months, prompting numerous warnings from Greenlight Capital David Einhorn and Wolfe Research strategists.