Home features Correction is near as stocks are in an “epic bubble”, investor says

Correction is near as stocks are in an “epic bubble”, investor says

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  • The bull run which occurred back in 2009 had “matured into a fully-fledged epic bubble, says Jeremy Grantham
  • S&P 500 price closed 0.66% lower yesterday to record the first daily session of losses in five days
  • The US benchmark index closed 1.83% higher last week to exceed the 3800 mark for the first time ever

Rumours about the stock market currently being in a bubble have emerged once again as many analysts want that extreme valuation are unsustainable. 

Fundamental analysis: “Epic bubble”

Stocks have hit record highs amid the persistent coronavirus pandemic, driven by the rollout of COVID-19 vaccines and monetary stimulus from global central banks. 

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Even though the rollout of vaccines has already started in many countries, the number of infections is still on the rise as new variants of coronavirus are being identified, resulting in the reintroduction of strict lockdown measures around the world.

Jeremy Grantham, British investor and co-founder of GMO, said Tuesday that the extended bull run which occurred back in 2009 had “matured into a fully-fledged epic bubble.”

“Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behaviour, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000,” Grantham added.

He pointed out that the price-to-earnings ratio is currently in the top percentiles while economic growth is standing in the bottom percentiles. Grantham highlighted that the stock market price-to-earnings ratio is in the top few percentiles historically while economic growth is among the bottom percentiles.

“This is completely without precedent and may even be a better measure of speculative intensity than any SPAC (special purpose acquisition company),” he said.

Technical analysis: S&P 500 

S&P 500 (SPX) price closed 0.66% lower yesterday to record the first daily session of losses in five days. The US benchmark index closed 1.83% higher last week to exceed the 3800 mark for the first time ever. 

S&P 500 daily chart (TradingView)

We may see a deeper pullback from these levels with 3770 offering nearby support for S&P 500, while 3650 is offering strong support in case the correction accelerates in the coming days. 

Summary

Investor Jeremy Grantham believes the prolonged bullish rally which emerged in 2009 has evolved into a fully-fledged bubble.