Markets are starting to look like a bubble, according to a senior strategist at Bank of America.
In a new interview with Bloomberg, Michael Hartnett, the bank's chief investment strategist, pointed to the rise in prices of cryptocurrencies, the “magnificent seven” technology stocks and stocks related to artificial intelligence.
“I mean there's tremendous euphoria. The euphoria is there because of the Fed. The Fed wants to lower interest rates, no matter what, and the markets are riding on that in gold, in cryptocurrencies, in stocks, and even in corporate bonds.
But a bubble is when too much money is chasing too few goods and everyone wants the chips and there's too much money chasing that, and yeah, I think it has properties [of a bubble] In terms of price, speed of movement, valuation, and breadth of scope. Bubbles are tight, bull markets are wide, this isn't very wide.
The “Magnificent Seven” technology stocks include Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia and Tesla.
Hartnett notes that the bubble “doesn't have to burst now,” but says macroeconomic data in the United States looks ominous, especially in the labor market.
“There is no doubt that the US labor market is fractured. At the same time, there is no one in America who believes that inflation will reach 2%. Because it is not. It is stuck between 3 and 4%.
So the backdrop of inflation being a little bit higher than expected and growth being a little bit weaker than expected, that's usually not good for risk assets, but if the risk assets are saying “we don't care, we have AI and all this” kind of thing, that's a symptom of the kind of thing. Bubble mentality.
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