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Reuters: Toppy Stock Markets Spark More "Bubble" Chatter

February 20, 2021
Image for Reuters: Toppy Stock Markets Spark More "Bubble" Chatter

By Aaron Saldanha & Thyagaraju Adinarayan in Reuters

A strong start for world equities in 2021 after the fastest bear-to-bull market switch last year has prompted market mavens to flag worries about pricey assets, with BofA calling it the “mother-of-all asset bubbles”.

The torrent of cash sloshing around world markets due to the unprecedented stimulus measures in place to fuel economies coming out of the pandemic-led recession has fed into the euphoric rush to equities, particularly Big Tech.

The U.S. Federal Reserve for instance has been purchasing bonds at a record pace, doubling its balance sheet to nearly $8 trillion in less than a year. During the same period, the five biggest tech stocks have seen their market value double.

As financial assets worth $1.1 billion are gobbled up by global central banks every hour, there is irrational exuberance on Wall Street, according to BofA.

Goldman Sachs’ Chief Executive David Solomon and strategists at some major investment banks have since January been warning about stock market volatility, particularly in the immediate future.

Most traditional market-top signals have been flashing amber - just as they did before the bursting of the dotcom bubble two decades ago

The benchmark U.S. S&P 500 is now the most expensive developed market index based on the price-to-earnings ratio, trading at levels last seen during the dotcom bubble of the late 1990s.

Some data points below signal higher odds of a bubble:

1/ PARTYING LIKE IT’S 1999

Sitting at 22-times 12-month forward earnings, the S&P 500 is trading well above its long-term average of just 16x. Other major .....

To read this article in Reuters in full and view the relating charts, click here.

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