EDITOR'S NOTE
There were some pretty head-spinning moves in the market yesterday.
Salesforce--Salesforce!--up 26%!! This is a $200 billion market cap! Or at least it is now. Workday and Adobe up around 10%. Netflix jumped 12% for seemingly no reason. Facebook surged 8% even as it warned that Apple's new phone operating system could whack its mobile advertising business by half.
I tweeted my shock at these moves and got probably the biggest response yet to anything I've tweeted in Kelly Twitter version 2.0. Almost 1,000 likes, people. Pretty bigtime. But the reason why it resonated so much is that the public is clearly pretty convinced that we're in a stock market bubble fueled by the Fed. Check out the responses below my tweet and you'll see what I mean. ("Jay Powell is the most reckless central banker in history," etc.)
And stock moves like that definitely feel a little frothy to me. After all, like we were joking at work yesterday, if stocks are going up every day, why wait 10 days for a 10% gain when you could just have it all now? The stock market refrain of the year so far is Dave Portnoy's "stocks only go up."
This is a different kind of bull market from the last one. This one, as strategist Brian Reynolds keeps emphasizing, is driven not by stock buybacks anymore, but by "short covering and the new breed of retail investors putting money to work."
To me that suggests sharper, and perhaps longer-lasting, rallies and corrections this time around while the annual gains may average out to a little less than we saw when it was big corporate money being steadily put to work. As Mr. Reynolds warned earlier this month, retail investors have pushed the market's put/call ratio (an options reference) to an extreme, after which he says "stock prices typically become even more stretched over the following month or so," which is exactly what we're seeing.
A market that is stretched right now? Absolutely. Overly momentum-driven? You bet. But a bubble? I can't go that far. Salesforce, after all, just posted 29% year-on-year revenue growth in its quarter--for a twenty-year-old company! Hence its share-price surge yesterday (not to mention it's being added to the Dow). Workday and Adobe were rallying in tandem as investors salivated over what that means for the cloud software industry.
I guess you could say I'm still in the Michael Darda camp. The MKM strategist has been asserting that the market's V-shaped rebound (a) would happen, (b) was sustainable, and (c) is a product of the V-shaped economic rebound that is shaping up, thanks to the Fed's massive liquidity injection.
The other camp, which I'll call the Richard Bernstein camp, is where most of the public seems to sit right now. Mr. Bernstein was on Power Lunch yesterday and I asked him whether he thinks the market is in a bubble. He more or less said yes because he believes the Fed's massive liquidity is only making its way into asset prices: "If monetary policy were making its way into the real economy as opposed to just bubbles," he said, "we'd see commercial banks doing really well, and that's just not happening." He has a point.
All of which brings us to the Fed's "major announcement" this morning. They're basically trying to promise they'll keep rates at zero even after inflation goes back above 2% annually, in order to bring the jobless rate down as quickly as possible and not choke off the recovery too soon. Bottom line? Stocks read this as the Fed being dovish for the next few years ("Jay Powell is on the side of bulls," Jim Cramer quipped this morning), while bonds aren't too concerned that real inflation is really coming.
Kind of...makes sense as a policy move, if you think about it. Can stocks keep getting overextended in the meantime? Yep. Is a bubble still possible here? Absolutely. But I just don't think we're there yet. The overall economy is healing, and the Fed is largely to thank for it. Even the banks should ultimately benefit as this process continues, so long as they can fend off competition and make money despite low interest rates. And by the way, this Fed policy should ultimately cause longer-end rates to rise on renewed growth prospects, as is already happening this month with the 30-year Treasury.
By the time the recovery fully shows up on Main Street, investors will have moved on to other concerns. Like inflation, market bubbles, or the inevitable corrections that are coming. But would the Fed tighten policy because there's a bubble (and I'm not afraid to call it that) in electric vehicle stocks? I think their message today is: don't bet on it.
See you at 1 p.m!
Kelly
P.S. Click here to find The Exchange as a podcast.
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Kamis, 27 Agustus 2020
I can't (yet) call it a bubble
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