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Ex-Merrill Lynch economist David Rosenberg torched stock market “clowns” for blowing a “mega-bubble” in the Dow Jones.

Home Markets Economist: Stock Market Clowns Have Blown a ‘Mega-Bubble’ in the Dow

  • The stock market is at record highs, even though the U.S. economy isn’t.
  • Concentrated bets on a handful of titanic companies have the major U.S. indices soaring.
  • Economist David Rosenberg warns this is a “mega-bubble” – and the pop is going to be “spectacular.”

As the stock market continues to wind its way higher, Wall Street’s permabear herd is growing thinner and thinner. There aren’t many left, but the few who remain can barely believe their eyes as the Dow marches toward a new all-time high.

David Rosenberg: Brace for a ‘Spectacular’ Stock Market Crash

There’s no question it has been a tough year to be one of the bears. They finally got the stock market crash they were looking for, only to have it whisked away before their eyes.

Steadily rising equity prices rubbed salt in the wound over the ensuing months, with both the S&P 500 and Nasdaq eclipsing the already frothy heights they achieved in early 2020.

Dow Jones, Stock Market, S&P 500

The Dow Jones has risen from the ashes of a major crash in 2020. | Source: Yahoo Finance

The poster child for the bull market has to be the world’s most valuable stock: Apple. There’s no comparison to AAPL’s run-up to a $2 trillion market cap, though Tesla’s incredible momentum ranks as an extremely close second.

David Rosenberg, chief strategist at Rosenberg Research and formerly the top North American economist at Merrill Lynch, doesn’t buy that stocks can justify record highs while the economy is in the tank.

He continues to ridicule the moves seen on Wall Street, and he predicted this week that an incredible crash is on the horizon:

Watching the market these days is like watching a clown blowing up a balloon (or Chuck Prince dancing in the ballroom) knowing the inevitable. Remember what Herb Stein had to say about things lasting forever. When this mega-bubble pops, it will be spectacular.

Fueling the caution of bears like Rosenberg is the inexplicable success of novice investors like Dave Portnoy, who has embodied the FOMO with his “stocks always go up” mantra. Watch a recent clip of his “Davey Day Trader Global” web show below:

Ironically, although it’s the bulls that sparked the mega-cap rally, it’s the former bears who are sustaining it.

Sebastian Galy at Nordea Asset Management explained why in a comment shared with CCN.com:

As a consequence, bearish bets on top growth stocks have reached an all-time low. Momentum trades are amplified by the market making of option traders and their concentration in a few growth stocks.

Dow Jones Strength Belies a Fragile U.S. Economy

Much like the upcoming U.S. presidential election, this bull run has polarized economists.

Bears like Rosenberg struggle to reckon the economic plight seen in working-class households with buoyant asset prices.

On the other end of the spectrum, bullish analysts simply shrug their shoulders and say what happens on Main Street is irrelevant to what happens on Wall Street. In their view, equities are appropriately priced based on near-zero interest rates.

If a stock market crash like the one David Rosenberg envisions is coming, it’s clear that Dow bulls will be caught on the wrong side of an extremely crowded long trade.

The question facing Rosenberg and his shrinking band of battered bears is this: If a once-in-a-century pandemic couldn’t ignite a sustained sell-off, what on Earth is left to light the fuse?

Rosenberg has long been bearish on equities, but he claims the present behavior in financial markets is bordering on the comical.

Author: Francois Aure

Source: CCN: Economist: Stock Market Clowns Have Blown a ‘Mega-Bubble’ in the Dow

The Dow Jones tumbled on Thursday, and a raft of horrific economic data looks like the primary culprit behind the stock market’s struggle.

The Dow Jones suffered a big pullback on Thursday.
Unemployment claims and a historically grisly GDP report weighed on the U.S. stock market.
One economist warns financial market pricing is still too optimistic.

An afternoon relief rally launched the stock market off its lows, but the Dow Jones Industrial Average (DJIA) still hurtled toward a substantial loss ahead of the closing bell.

Awful economic data walloped Wall Street – and kept the Dow down more than 200 points.

Dow Jones Struggles After Weakest Quarterly GDP Reading In History

As of 3:19 pm ET, the Dow Jones had lost 235.63 points or 0.89% to fall to 26,303.94.

The Dow Jones fell on Thursday as awful economic data weighed on the U.S. stock market. | Source: Yahoo Finance

It wasn’t all doom and gloom in the stock market, though. The Nasdaq rode optimism about Big Tech earnings to a 0.56% rally.

The S&P 500 slid 0.35% to 3,247.14.

Investors had plenty of data to digest on Thursday; jobless claims and GDP data dominated the headlines.

Although the -32% quarterly GDP reading was technically better than expected, it still constituted the worst contraction in recorded history. Wall Street should have been well priced for this, but the frightening number appeared to dent risk sentiment.

Adding to the Dow’s woes, initial jobless claims came in well above 1 million for the 19th straight week.

Continuing claims held above 17 million, suggesting a rapid rebound in the jobs market was never anything more than a fantasy.

Stock Market Pricing Looks Too Optimistic

Many economists believe the on-the-ground reality has diverged wildly from stock market pricing.

James Knightley at ING warns that despite all the visible damage, investors continue to price in a “vigorous recovery” that just hasn’t materialized.

We now know that the deepest ever quarterly contraction was -32.9% annualised. Financial markets are already priced for a vigorous recovery, but with virus fears on the rise, jobs being lost, and incomes being squeezed as unemployment benefits are cut, we feel the recovery could be much bumpier… We are in for some data disappointment over the next couple of months – starting with next week’s payrolls number.

U.S. GDP growth fell off a cliff in the second quarter amid the COVID-19 pandemic. | Source: Think ING

If the Federal Reserve is correct and the future of the U.S. economy is tied to pandemic outcomes, Wall Street may start paying more attention to the virus numbers again.

With 1,400 deaths in the most recent daily numbers, approximately one fatality per minute paints a stark picture of the unfortunate state of affairs.

And if that’s not enough, CNBC talking head Jim Cramer fears President Donald Trump’s alarming (if toothless) comments on the upcoming election could forebode a new breed of political headwind for the stock market.

Dow 30: Big Oil, Big Losses

On a rough day for the Dow 30, only a handful of stocks managed to trade higher.

The overall index found support from Apple, which rose 0.9% ahead of its post-bell earnings report. Elsewhere, blue-chip DJIA stocks suffered heavy losses.

Aerospace giant Boeing fell another 2.5% on reports it may have to execute even more job cuts. Global risk bellwether Caterpillar took a 2.7% knock.

Oil supermajors Chevron and Exxon Mobil dropped 3.9% and 4.6%, respectively.

Dow Inc. was the weakest stock in the index, enduring a 4.7% decrease.

Author: Francois Aure

Source: CCN: Dow Tumbles After Horrific Economic Data Spooks U.S. Stock Market

The NASDAQ 100/Russell 2000 ratio is at its highest level since the dot-com bubble burst, throwing caution into the insanely bullish market.

  • The Nasdaq is close to record highs once again.
  • An alarming ratio with the Russell 2000 shows an exceptionally strong correlation with the dot-com bubble.
  • Will Tesla, Apple and the tech gang have the last laugh?

As if the Nasdaq wasn’t looking bubbly enough, yet another blatant comparison with the dot-com bubble has emerged. Will this be enough to slow down the relentless bullishness in the U.S. tech sector, or will the bulls continue to run wild.

Nasdaq Boom Draws Dot-Com Comparison

It’s been a terrible few months to be a Nasdaq bear on Wall Street. Although they got the collapse they’ve been calling for for years, the massive rebound left many on the sidelines and valuations even more stretched.

Just how stretched? Well, the NASDAQ 100/Russell 2000 ratio is now at the highest level that it has been since 2001 when the chickens came home to roost and the bubble burst.

The Nasdaq is now hitting ratios not seen since the dot-com crash in the year 2000. Source- Liz Ann Sonders via Twitter

Massive unemployment, surging virus cases and generally weak economic conditions have done nothing to slow the Nasdaq’s recovery down. While it looks irrational on the charts, like all big moves in the stock market, it is founded in some truths.

First, the $trillion giants like Amazon, Apple, Microsoft and Google are all in the tech sector. Faced with an economic disaster, investors have seemingly opted for the best balance sheets they can find.

While airlines and cruises struggle with debt and former global players like Hertz fumble with bankruptcy, Apple is still buying back shares and has $billions of free cash on its books.

Faced with the U.S. Federal Reserve printing a historic amount of USD, we have once again seen money flow into asset prices. Ample liquidity has fuelled risk-taking, and it is not just the ultra-caps that have gone up hugely.

The Nasdaq is carving out a parabolic spike on its technical chart. Source- Sven Henrich via Twitter

Tesla stock has enjoyed a meteoric rise, and is now worth more than $1300 a share, making it the world’s most valuable car company.

Is it that profitable? No. Do fans think it’s going to rule the world? A lot of them do, yes.

It would appear that there is also a “stay at home” trade, seeing money flowing into the Nasdaq, as companies like Zoom actually benefit from lock-downs and quarantine.

Nordea Asset Management: Euphoria Starting To Be Seen In Nasdaq

Despite all the wild enthusiasm, Sebastian Galy at Nordea Asset Management believes that there could still be more upside, as the equity market consolidation continues on Wall Street, as he told CCN.com:

I had presumed that we were on the onset of the third and last phase of the Covid-19 rally, one devoid of the link to economic reality across a wide spread of assets. The reality is more of a continued consolidation linked to the expected path of global growth with worries about a W shaped recovery in the United States, given poor Health management and delays in a second fiscal package. There are elements of euphoria from Tesla to Chinese stocks or the outperformance of the Nasdaq, but they have not spread widely yet.

As you can see, almost every outcome, from re-opening to re-lockdowns can be spun as a positive for the index.

Most of the Nasdaq is powered by stories of growth rather than actual profit.

This works just fine when risk appetite is good but can turn around very quickly when things go wrong. If 2000 showed us anything, it’s that at some point you’ve got to start making money. I’m looking at you Nikola.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.

Author: Francois Aure

Source: CCN: Nasdaq Hits Alarming Russell 2000 Ratio Unseen Since Dot-Com Bubble

The Dow Jones crashed 1,000 points on April Fools’ as Bloomberg leaked U.S. government intel that reveals China has underreported its coronavirus statistics.

The news could put pressure on Dow 30 giants like Apple and Caterpillar, both of whom have substantial exposure to the Chinese economy. | Source: REUTERS/Jason Lee

  • The Dow Jones suffered a painful drawdown on Wednesday.
  • Bloomberg exposed a secret report confirming that U.S. intelligence believes China has wildly underreported its coronavirus statistics.
  • ING warns that a seemingly-optimistic manufacturing report was inflated by a quirk in the index.

The Dow Jones tumbled 1,000 points on April Fools’ Day as a fresh wave of selling ushered the stock market into the new month.

Dow bulls have plenty to be concerned about. Bloomberg’s leak of a secret U.S. government report appeared to confirm concerns that China’s coronavirus data is highly inaccurate.

Dow Jones Falls As April 1st Brings Heavy Selling

The Dow Jones fell more than 4% on Wednesday as a wave of selling greeted investors on April 1st. | Source: Yahoo Finance

All three of the major U.S. stock market indices struggled on Wednesday:

  • The Dow crashed 1,014.73 points or 4.63% to 20,02.43.
  • The S&P 500 fell 4.87% to 2,458.83.
  • The Nasdaq dropped 4.8% to 7,330.86.

Gold rose just 0.28% despite the glaring weakness in risk assets.

In the oil market, Brent stole the headlines with a 6% loss after a sizable build in gasoline inventories. Crude remains stuck around $20 per barrel, with Morgan Stanley forecasting prices could fall as far as $10.

In a perfect example of how dangerous the current trading conditions are for retail investors, today’s ISM Manufacturing PMI beat expectations comfortably, and the Dow plunged anyway.

ING Chief International Economist James Knightley explained this strange price action, demonstrating how the vital reading is being misrepresented by a key component of the index.

The headline index is being artificially boosted by a surge in the supplier delivery times component of the report. Normally, when delivery times are longer, this reflects demand outstripping supply – a good situation.

However today delivery times are extended because of the supply shock relating to Covid-19 with firms struggling to get inputs from China and increasingly from domestic suppliers because of company shutdowns, which is clearly a bad situation. As such, the ISM headline is painting an overly rosy picture right now.

Investors shrugged off this seemingly-positive data and have turned their attention back towards the jobs report.

Goldman Sachs predicts a significant contraction (200,000 jobs) in non-farm payrolls this week, and jobless claims could explode to 5.5 million.

Source- Twitter

Bloomberg: U.S. Government Intel Confirms China’s COVID-19 Stats Are False

Fueling the suspicion about China’s coronavirus statistics, Bloomberg revealed that a secret U.S. government intel report concluded that Chinese COVID-19 data is underreported.

The report claims a significant number of patients were not diagnosed, leaving the official data “intentionally incomplete.”

This allegation had been on the White House’s radar, with President Trump alluding to the possibility on multiple occasions.

While this discrepancy is disheartening, it is not entirely unexpected given what has transpired in Spain and Italy.

Yet the news could put pressure on Dow 30 giants like Apple and Caterpillar, both of whom have substantial exposure to the Chinese economy.

Meanwhile, coronavirus cases continue to climb. The United States just surpassed 200,000, and global infections are creeping toward the 1 million mark.

Yet some economists say that today’s stock market plunge is less about new coronavirus developments than technical dynamics. The theory is that pension funds bought stocks during the past week’s end-of-quarter rebalancing period. Now that portfolio balancing is over, the “fast money” appears to be wreaking havoc on the Dow Jones.

Source: Twitter

Dow Stocks: Boeing Slides As Airline Stocks Plummet

It was a rough session in the Dow 30 as April Fools’ Day brought a fresh wave of selling to a nervous marketplace.

Erasing its recent rally almost as quickly as it appeared, Boeing crashed 11% as airline stocks came under intense pressure. Adding to the sell-off, the Air Force found a major issue in the company’s KC-46 Pegasus aerial fuel system. BA stock is currently trading at $132.

Likely hurt by the leaked intel report on China, Apple stock fell 5.5%. Caterpillar and Nike, who also have significant exposure to the region, were down 4.7% and 4.5%, respectively.

Only one Dow stock was left clinging to a slight gain as the brutal session finally approached its conclusion. Walmart shares edged 0.59% higher.

Author: Francois Aure

Source: CCN: Dow Plunges After Secret U.S. Intel Destroys China’s COVID-19 Stats

The price of bitcoin soared after Jerome Powell acknowledged that systemic threats have triggered a lot of digital currency projects.

  • The price of bitcoin jumped on Tuesday after Jerome Powell stressed that the Fed is investing a significant amount into digital currency developments.
  • Adding fuel to the fire, Powell also acknowledged how quickly crypto could become a systemic risk to the USD.
  • China’s “Belt and Road” initiative is expected to roll out a digital currency very soon, and the Fed Char was clear that the U.S. was doing its best to keep pace.

An otherwise dull testimony from Federal Reserve Chairman Jerome Powell got very interesting for bitcoin, as BTC/USD spiked 4% to $10,200.

Cryptocurrency markets soared after Congressman Bill Foster raised concerns about the need to keep pace with China’s digital currency ambitions to which Powell responded that the Fed has a “lot of projects” underway.

Bitcoin Surges After Powell Acknowledges Fed Is Working Hard On Crypto

It is well documented that China has tremendous ambitions in the realm of digital currency. Congressman Foster’s concerns about Beijing’s ambitions centers on the risks posed to the U.S. dollar’s status as global reserve currency.

Bitcoin went vertical midday after the Jerome Powell indicated the Fed was making a serious effort to keep up with China’s digital currency development. Source- Yahoo Finance

Bitcoin investors took this as a positive development, as BTC/USD soared on Powell’s acknowledgment that the Fed would “keep the fire lit” regarding blockchain development.

Despite the impressive response from cryptocurrency markets, the Fed chair was still guarded about the implementation of a digital dollar due to privacy concerns:

The idea of having a ledger where you record everyone’s payments isn’t particularly attractive in the U.S.; it’s not a problem in China.

Fed Chair: Dollar Could Face Systemic Risk From Digital Currency

Despite this, Powell was clear that the theoretical implementation of Facebook’s Libra had been a game-changer, and that his institution now understands the importance of making “quick progress in this area.”

It’s quite obvious why bitcoin would rally so aggressively in this instance, as the most powerful man in finance acknowledged the speed and scale in which digital currency could disrupt the dollar. This is a definite change of tone from the FOMC’s historical opinion on this issue.

China’s Belt and Road Initiative Expected To Utilize Crypto

An additional positive from this exchange is the stark reminder that crypto is about to become a mainstream technology for the world’s second-largest economy. China is planning to use blockchain in its “belt and road” initiative.

Powell has been quite open about bitcoin in the past, even acknowledging that it is a store of value like gold. Today he further demonstrated the high level of intellectual investment that the Federal Reserve is making into cryptocurrency.

Bitcoin To Benefit From Better Institutional Understanding

It’s probably good news for bitcoin that the world’s largest central bank has a better understanding of blockchain technology.

Bitcoin has been on a tremendous run since December and looks to have firmly retaken the $10,000 handle this week. With the upcoming halving in the spring, things are looking increasingly stable, particularly after Powell’s comments today.

Author: Francois Aure

Source: CCN: Bitcoin Price Soars as Jerome Powell Confirms Crypto’s Threat To U.S. Dollar

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