Markets seem to be inside a bubble. What are investors doing now?

For many, valuations seem to stretch as they move to levels similar to the high-flying days of 2000. That said, high valuations alone do not necessarily mean the rally is about to end, investors say. . History has shown that markets have often been able to rise much higher than previously thought, either the boom of the dot-coms in the late 1990s or the dizzying rise in Japanese stocks in the 1980s.

And recently, the broader stock market has fallen. The S&P 500 fell 3.3% last week, although it remains at 66% from the March low. The behavior of the bubbles has been maintained mainly in a handful of individual stocks, not in larger indices.

An even bigger problem arguing against a bubble across the market is simple math. With interest rates falling and more stimulus on the table, many investors receive a good reward by putting their money into riskier, higher-yielding assets. In addition, in many cases revenues have remained or have been solid, despite a global pandemic.

This combination of factors has helped drive investor optimism. According to a recent Bank of America survey of 194 money managers overseeing $ 561 billion in assets, the audience of shares among money managers is maximum in three years. Meanwhile, the average share of cash in portfolios, usually a protection against market turbulence, is at its lowest level since May 2013.

Still, investors are trying to identify what could cause bubbles to appear between individual stocks and whether any of the explosions will spread to the wider market. Next week, investors will see news about the manufacturing sector, the profits of Amazon.com Inc..

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and Google Alphabet Inc..

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and the January employment report.

“You know, this one has ticked all the boxes in a history book,” said Jeremy Grantham, co-founder of Boston money manager Grantham, Mayo, Van Otterloo & Co., who predicted the downturns in the 2000 and 2008. Grantham has been calling the current market overheating since last year.

But even he admits that the time to get a market is difficult.

“We know that each bubble is a little different and, with the help of new trading platforms and the Internet, it could set more records,” he said.

Mr. Grantham is not alone in his worries. According to a recent Deutsche Bank survey, almost 90% of the market’s 627 professionals think some financial markets are in a bubble. Meanwhile, Google is searching for the term “stock market bubble” to an all-time high in January.

Jerry Braakman, chief investment officer of First American Trust, says his company, concerned about widespread valuations in the U.S., has been gradually shifting more money into shares elsewhere.

Lately, “the market has not correlated with the macro landscape,” he said.

While movements in some stocks and assets have been discrepant, analysts and investors say they are not surprised by speculative, wheelless activity in financial markets.

A super-accommodating federal reserve, low interest rates and, more recently, optimism about the vaccine and the coronavirus economy have underpinned much of the investor buying over the past 11 months. Many Americans accumulated their savings during the pandemic and will earn even more if Congress follows another stimulus package. And the low-yield outlook for most other assets has prompted investors to buy stocks more aggressively.

In addition, there are more investors than ever before. These investors gained weight last year by clashing with Wall Street veterans with a string of irrational selections, including Hertz Global Holdings Inc.,

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which increased by almost 900% from its minimum to the maximum after the application for bank protection.

This year’s encores have been even more impressive. On Wednesday alone, 24.5 billion shares and 57.1 million options contracts changed hands, a record driven by individual investors, according to Rich Repetto, CEO of Piper Sandler & Co. the video game retailer gained more than 1,700% since the beginning of the year.

“This is just one example of what is becoming tens of dozens,” Grantham said. Other retail estimates include AMC, which jumped more than 300% on Wednesday, and BlackBerry Ltd.

, whose shares on the same day earned their biggest gain in more than 17 years.

Companies are in a hurry to participate in the action.

The companies have raised $ 13.4 billion through 24 IPOs so far this year, up 300% from the same period last year, according to Renaissance Capital data. Blank check companies continued to flood the market, with 91 raising nearly $ 25 billion, nearly a third of the value raised last year, according to SPACinsider.com. And there have been 111 additional stock offers from U.S.-listed companies, which have doubled in number from the same period last year, according to Dealogic data.

Normally, this frantic activity would lead large managers to withdraw from stocks. But many argue that the actions of GameStop, AMC and other high-flying stocks represent their own bubbles and do not pose a threat to the entire financial ecosystem. Goldman Sachs Group Inc. analysts.

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they claim that the accumulation of unprofitable stocks, which they say account for about 5% of the global market, poses little risk of infection.

“These stocks don’t make up the bulk of the stock market,” said Samantha McLemore, a $ 3.5 billion portfolio manager, Miller Value Partners, money manager. “There are so many areas of the market that we find attractive.”

At first glance, the effort of investors to measure valuations, the relationship between prices and profits, suggests that the market seems expensive.

Currently, the S&P 500 is trading at 22 times the projected gains over the next twelve months, not far from the 25 times the index traded in 2000, just before the drop in com-points, according to FactSet.

But that’s just part of the picture. This level seems less worrisome once low interest rates and earnings are taken into account, which are expected to grow, according to several investors and analysts.

A simple explanation for why investors haven’t withdrawn anymore?

“We’ve seen it in the past, if you think you have a bubble and you’re coming too soon, this can be a very costly trade,” Braakman of First American Trust said.

Write to Michael Wursthorn to [email protected] and Akane Otani to [email protected]