EconomyU.S.

Analysts Warning of Y2K Style Stock Market Correction (Again)

(Noted News) — Despite the United States being in its worst economic condition since the 1930s, the stock market closed at all-time highs again following Donald Trump’s signing of the $900 billion COVID-19 relief bill. This doesn’t sit well with an increasing amount of analysts who are wary that the stock market is severely overvalued and ripe for a crash. 

These types of forecasts are obviously becoming a bit stale at this point, but it’s worth pointing out that not a single soul can explain why stocks continue to creep up. 

John Hardy, head of FX strategy at Saxo Bank, noted that although the circumstances are different, the stock market is showing parallels to 1999, when a historically high stock market kicked off the next year with a massive correction.

“Market historians looking back to another incredible year—1999—in which the S&P 500 closed the year at a new all-time high, will recall that the initial few days of the year 2000 saw a vicious correction. Yes, times were different, and the focus then was on Y2K and the concentrated bubble of the time, but investors need a reminder that even during major bull market runs, one can see significant setbacks.”

Hardy is not the only one to notice a similarity between now and 1999. Statista also notes that the stock market to GDP ratio is at another all-time high, dwarfing the high of 20 years ago. This particular ratio is one of Warren Buffet’s favorite indicators for stock valuations.

“Seemingly defying all that was going on in the United States, the stock market had previously rounded off a great summer with its best August in decades. The tech-heavy NASDAQ Composite Index even reached a new all-time high on September 2, closing above 12,000 points for the first time, up more than 75 percent from its low point in March. And while the months-long rally was greeted with celebrations by some people, others were eyeing it with suspicion, worried about what looks like a growing disconnect between the stock market and reality.”

Skepticism of the stock market and the economy at large is confirmed by historic rallies in the safe havens of gold and real estate, and an even more historic rally in the once nascent and obscure Bitcoin. Russel Okung, a player for the NFL Carolina Panthers, is pioneering a contract where he gets half of his salary in Bitcoin each year.

Bets against the dollar are also at a ten-year high, with net short trades in various currencies against the USD surging, and, according to Goldman Sachs, will continue to pile on into 2021. 

With the economy being run at a minuscule fraction of its capacity because of the COVID-19 restrictions, the only real source of economic optimism is the new vaccine, which is acting as a distant light at the end of a very long tunnel. 

Just as it arrived, reports of a new strain of the virus started popping up in Europe, and recently in the US. The vaccine is struggling not only to be manufactured and distributed in large enough numbers, but also to gain the trust of enough people to render the program somewhat effective.

A Gallup poll from November recorded the majority of participants answering “No\I don’t know” to whether or not they would receive the vaccine. An earlier experiment by  Franklin Templeton-Gallup Economics of Recovery Study showed that if the vaccine was introduced sometime in 2021, confidence in it would have been a bit higher. Obviously, that didn’t happen, and many view the vaccine’s development as rushed. 

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