Is The Market In A Bubble ?

One strategist is less on the side of a 2022 bull rally, and more on the side of a catastrophic bear market, suggesting as much as a -15% “correction” for the S&P 500.

On the “Call of The Day,” presented buy a team at Stifel Investment Banking, the leader of the call, Barry Bannister, warned investors of the third bubble in the stock market in over 100 years, “thanks to poor monetary and fiscal decisions since Covid-19,” says Mr. Bannister.

Bannister adds, “enjoy the Santa rally while it lasts,” as the team sees a near-term correction tanking the SPX almost 600 points to as low as 4,000, and even worse, the team suggests that this can happen as early as the first quarter of 2021.

Bannister commonly refers to the Federal Reserve as the “behind-the-curve-Fed,” as one of the worst inflation calls of all time took place last Friday and they are just now looking to double taper...He believes the Fed may end up creating the third severe market bubble.

The Fed notoriously embraces “Populism,” which has led to the poor choices that have taken place recently and can potentially lead to even worse outcomes, with rate depression being one of the leading causes for a bubble.

Have you ever heard the quote, “the past predicts the future?” The Stifel team urges investors to look to history for proof that a bubble is actually feasible in current market conditions and that the market is in fact...not risk free. The SPX dropped almost -20% in Q3 of 1998 just before the horrific 1999 dot-com bubble burst. Bannister points out that a “late-arriving” Fed taper, just like we are seeing now, could not have stopped the bubble from bursting. The same thing happened in the Roaring 20’s. The market was faced with a -10.7% drop while rates were hiked too late.

This is scary: Take a look

As seen in the graph above, the SPX is approaching nearly the exact same level where the two prior market bubbles began. The SPX then ran more,confirming the bubble,

and then just like that, the bubble burst and now everyone is crying wondering where their 100% returns went…

“The only way to prevent such a bubble would be for the Fed to heed its own financial stability report where it warned over elevated risk appetite among retail investors and high equity and real estate valuations, and “tilt hawkish,”” said Bannister and his team, or in other words, time to become proactively aggressive with the current monetary policies. BUT, that still doesn’t eliminate the fact that policy may still arrive too late.

So, what stocks are “bubble-proof?” Well, technically none, but Bannister and his team suggest that healthcare, consumer staples, utilities and telecommunications are “the safety spots of choice...for now”

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