Froth or justified rally? Wall Street titans do not agree
The sharp rally in US stocks this year has left strategists at JPMorgan Chase & Co. and Goldman Sachs Group Inc. divided about whether a market bubble is forming.
To JPMorgan’s chief market strategist Marko Kolanovic, the dramatic rally in US equities and Bitcoin’s quick surge above the $60,000 mark signal yes. He sees those advances as indicative of accumulating froth in the market — conditions that typically precede a bubble when asset prices rise at an unsustainable pace.
He joins in a chorus of rapidly piling up warnings from Wall Street that are hearkening back to the dot-com boom of the late-1990s, or the post-pandemic mania of 2021, when stock prices quickly ballooned and then burst.
Meanwhile, David Kostin at Goldman Sachs is among those who thinks the risk-on mood is warranted, arguing Big Tech’s lofty valuations are supported by fundamentals.
As the S&P 500 Index keeps hitting new highs — driven chiefly by big gains in American technology giants — it’s drawn the ire of critics who think the bullish run can’t last, and excitement from optimists who think there’s room for more gains.
Kolanovic is a key figure in the former group. The market is pushing ahead “with volatility low and froth building,” he wrote Monday in a note to clients.
“Equities have moved up this year, even as bond yields rose and rate cut expectations unwound,” he said. “Investors may be assuming that the increase in yields is reflective of economic acceleration, but earnings projections for 2024 are coming down and the market appears too complacent on the cycle.”
S&P 500 futures dropped 0.2% while Nasdaq 100 futures fell 0.4% at 3 a.m. in New York on Tuesday, putting the underlying benchmarks on track for a second day of losses.
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