Trading Craze Stirs Bubble Debate
February 03 2021 - 9:48AM
Dow Jones News
By Joe Wallace
Is the retail-trading frenzy a sign the market is near its
top?
Edward Smith, head of asset allocation research at U.K.
investment firm Rathbones, is skeptical.
"Often, in some corners [of the market] things get carried
away," he said. "In the most-shorted names, clearly that's going on
today."
Historically, bubbles in the broad market have been preceded by
a rally of 300% or more in the three years before they pop, far
exceeding the advance in U.S. stocks in recent years, Mr. Smith
said.
To be sure, valuations of U.S. stocks are high by historical
standards. "But those investors who apply a mean reversion approach
to valuations are misguided," Mr. Smith said. "We're living in a
world of structurally low interest rates that have been
exacerbated, but not caused, by Covid."
"Structurally lower interest rates mean structurally higher
valuations," he added, saying future profits are worth more in
present-value terms when the rate at which they are discounted
declines.
This item is part of a Wall Street Journal live coverage event.
The full stream can be found by searching P/WSJL (WSJ Live
Coverage).
(END) Dow Jones Newswires
February 03, 2021 09:33 ET (14:33 GMT)
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