CNN Business/Paul R. La Monica
How much longer can this greed-fueled rally last?
Is the stocks rally turning into a bubble? Consider the evidence: The S&P 500 and Nasdaq are not far from record highs. The VIX (VIX) volatility index has plunged in the past month.
There has also been a crazy run this summer in speculative stocks like Kodak (KODK), which is apparently a drug company now, and bankrupt companies such as Hertz (HTZ).
Then there’s the surge in demand for many unprofitable initial public offerings and special purpose acquisition corporations like DraftKings and Nikola going public through blank check mergers.
And the CNN Business Fear & Greed Index, which measures seven indicators of investor sentiment, is not far from Extreme Greed levels.
The Wall Street euphoria suggests that this could be another bubble or market mania. They don’t tend to end well. So is this rally running on fumes?
Fox Business/Gunjan Banerji and Gregory Zuckerman
Traders brace for haywire markets around presidential election
The presidential election is three months away, but some traders are preparing for the possibility that prolonged political uncertainty will stoke stock-market mayhem.
The investors are going beyond the normal hedging ahead of a potential change in power in Washington. Instead they are betting on volatility and a possible market tumble later in the year. Among their concerns: President Trump could try to delay the election or disrupt mail-in voting, as well as the chance that a result remains unclear for weeks after polls close.
The election worries amplify existing concerns about the weak economy, a possible second wave of coronavirus infections in the fall and the highflying market. The bearish bet is that turmoil around the election hits the already fragile economy as the cooler months bring on more infections, all hitting the stock market that is priced for a recovery. The S&P 500 has advanced 4.4% this year to close at 3372.85 Friday. Its recovery since its March lows has powered the best 100-day stretch since 1933.
Stock market looks like ‘hapless Wile E. Coyote, running off the edge of a cliff,’ says behavioral economist
The S&P 500 index is teetering on the edge of a rarefied perch, persistently brushing aside uncertainties created by the COVID-19 pandemic in its ascent.
Although the rally by arguably the most important stock-market benchmark in the world has stalled out, its proximity to an all-time closing peak has made a number of investors uneasy to say the least.
“Never before have I seen a market so highly valued in the face of overwhelming uncertainty,” James Montier, behavioral economist and member of GMO’s asset allocation team, wrote it in a recent research paper titled “Reasons (not) to be cheerful: Certainty, Absurdity, and Fallacious Narratives.”
“It appears as though the U.S. stock market has drunk from Dr. Pangloss’ Kool-Aid – where everything is for the best in the best of all possible worlds,” he wrote, referring to Voltaire’s character in Candide, who asserted the Pollyannish philosophy that the current state of affairs always represents the best of all possible worlds.
Of course, like Voltaire’s satirizing in Candide of 17th century philosopher Gottfried Wilhelm Leibniz, who also espoused the thesis of a sort of dauntless optimism, Montier thinks market participants may be far too cavalier about the equity index’s burst higher in the face of a unprecedented economic calamity created by the worst pandemic in modern times.
CNN Business/Kaori Enjoji
Japan reports its worst GDP on record
Japan just reported its worst GDP on record as the ongoing Covid-19 outbreak dented consumption.
The world’s third-largest economy shrank 7.8% in the second quarter compared with the previous quarter, the country’s Cabinet Office said on Monday. That translated to an annual rate of decline of 27.8%, the worst since modern records started in 1980 and the third consecutive quarter of contraction.
Consumption, which accounts for more than half of Japan’s economy, slumped 8.2% for the quarter as businesses across the country shuttered during a six-week national emergency in April and May.
External demand shaved three percentage points off GDP on the quarter as global trade dried up.
“The lack of coherent policy response is really frightening. We need a wise, cautious and broad response to this terrible situation. It is exactly what [Prime Minister] Abe and Company lack when it comes to the way they are going about things,” said Noriko Hama, a professor at Doshisha Business School — part of Doshisha University.