Markets stocks

The Bubble That Never Pops (It’s Been One Trade For Half A Decade)

"We are in a deep recession, yet the stock market has completely blown it off", Duke's Cam Harvey, the godfather of yield curve analysis, told Bloomberg this week, during a podcast. It's true. Stocks have "blown it off", in the process "blowing" through February's pre-pandemic records to fresh all-time highs, even as concerns over leadership, breadth, and valuations permeate the thick summer air. It says something about attitudes when the only sign of angst is investors' preference for the names which have run the furthest. Nowadays, we measure risk appetite by the extent of mega-cap tech's outperformance. The better the Nasdaq 100 fares in a given session, the more "nervous" market participants are assumed to be. Last week, tech and momentum outperformed small-caps and value by wide margins, reversing the early August pro-cyclical rotation. Note in the figure (above) that weeks during which momentum and big-cap tech underperform are generally stretches characterized by optimism around the economy, the re-opening push, and/or vaccine news. Not coincidentally, those are also weeks when bond yields rise. Other than those fleeting episodes, the regime essentially never changes --
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5 comments on “The Bubble That Never Pops (It’s Been One Trade For Half A Decade)

  1. MC says:

    H! Have you just called the top???

  2. JimmyBoy says:

    What happens to the rest of the market when it pops?

  3. WPG says:

    “…whose business model almost literally involves pumping free money out of pipes in the desert”
    Well-written as always, but this phrase really stood out.

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