Wall Street bankers warned of toppy stock markets and a looming near-term retreat after exuberance from unprecedented economic stimulus has led to “frothy” asset prices.
BofA’s latest weekly fund flow data on Friday reflected some of that sentiment, with investors storming into money markets and gold funds while pulling some money out of emerging markets that had attracted billions of dollars over the past 16 weeks.
U.S. stocks, however, were the standout performer with inflows of $10 billion.
In the week to Wednesday, cash funds attracted $29.1 billion and gold $1.5 billion, marking the largest inflow since August, the U.S. investment bank said.
“Sell the vaccine: frothy prices, greedy positioning, inflationary and desperate policymakers, peaky China and consumer all ultimately (a) toxic brew in 2021,” said BofA’s chief investment strategist Michael Hartnett.
The recent buying spree has sent U.S. stock valuations soaring to 23 times 12-month forward earnings – levels hit during the peak of the dotcom bubble in the late 1990s. The numbers prompted Citi to downgrade the region to “neutral” from “overweight” on Thursday.
Citi, however, was bullish on British and emerging market stocks, citing “reasonable” valuations.
BofA said the 2020 trend to “buy everything” had trickled into 2021, but it expects a slowdown in risk assets as “policy, positioning and profits” peak around the end of the first quarter.
Goldman Sachs’ Chief Executive David Solomon said he was preparing for more stock market volatility, particularly in the near term, and sees some “excess in markets”, Axios reported on Thursday.
‘SPECULATIVE FEVER’
Analysts at investment bank Saxo also warned investors on Friday about “aggressive speculative fever” in some technology and green stocks, recommending they start reducing exposure to so-called bubble stocks.
At 206 times 12-month forward earnings, Tesla is among the list of bubble stocks Saxo highlighted in its note to clients. That’s a far cry from Daimler’s 10 times forward earnings and Toyota’s 16 times.
The recent jump in cryptocurrencies also sparked debate among bankers.
Noting the violent inflationary price action boosting bitcoin in the past two months, BofA said the world’s popular cryptocurrency “blows the doors off prior bubbles”, such as the dotcom boom, China in the 2000s and gold in the 1970s.
Bitcoin hit $40,000 on Thursday, having doubled in price within a month, and has rallied more than 900% since a low in March. It topped $30,000 for the first time on Jan. 2, having breached $20,000 on Dec. 16.
JPMorgan has said bitcoin’s current highs are unsustainable, but it added that the digital currency could climb much higher in the long term.
Sourced Reuters
Reported by Thyagaraju Adinarayan
For more Finance and Investment news follow i-invest Online.
- Scale AI-driven improvements across your organisation: A Q&A with Michael Wade
From ensuring AI delivers on sustainability, to managing change fatigue within organisations, IMD Business School Professor and tech author Michael Wade discusses all things digital transformation Michael Wade is Professor of Strategy and Digital at the IMD Business School in Lausanne, Switzerland where he directs the TONOMUS Global Center for Digital and AI Transformation. He… Read more: Scale AI-driven improvements across your organisation: A Q&A with Michael Wade - Tech must-reads for the modern business leader
As technological change continues to influence the world of business in ever more pronounced ways, gaining insight from within industry and academia has never been more vital – these four books offer exactly that Driven by rapid advancements in technology and evolving consumer expectations, the pace of change in modern industry has taken even the… Read more: Tech must-reads for the modern business leader - i-invest announces media partnership with GITEX GLOBAL 2025
i-invest is proud to be a media partner of GITEX GLOBAL 2025, the world’s largest tech, AI, and startup show, which takes place at the Dubai World Trade Centre from 13–17 October For over four decades, GITEX GLOBAL has been the premiere gateway for tech creators, investors and enthusiasts to collaborate. This year marking its… Read more: i-invest announces media partnership with GITEX GLOBAL 2025 - Prime property a strong option amid market volatility
Sotheby’s International Realty have recently released their much anticipated Mid-Year Luxury Outlook Report – this is what it means for ultra-high-net-worth buyers Sotheby’s International Realty’s 2025 ‘Mid-Year Luxury Outlook Report’ frames prime property as a strong option for ultra-high-net-worth individuals looking to navigate market volatility. The report states that luxury real estate “remains a safe… Read more: Prime property a strong option amid market volatility - Silver linings: How to change the midlife career narrative
Midlife job-seeking is often subject to ageism and disheartening rejections from automated application tracking systems – unless you change your narrative, says coach and author of a new book Sarah Bird In the first month of working as a volunteer coach on a local employability course it was glaringly obvious there was one quality that… Read more: Silver linings: How to change the midlife career narrative