Strategists Say A Stock Market Bubble Is Forming And A 50% Plunge Is Inevitable

Few weeks ago, Investing Port reported of the stock market being in an all-time  high, with the possibility of a bubble bust occurring in the coming year. Currently, strategist are commenting on a bubble formation and a possible 50% plunge.

Commenting on the possibility of a bubble formation, AdvisorShares CEO, Noah Hamman told Yahoo Finance’s The First Trade,  “I think so. It will continue on for a while for as long as we see we have an indication that we could have lower rates ahead possibly though with a pause, but with an increasing Fed balance sheet.”

Everything being in an all-time high is an indication that assets of all kinds are in a major rally mode almost in unison. It makes look as if investors are beginning to completely mispriced asset risk amid fear of missing out on rising markets. A bubble bust often ends up badly for investors.

Renaissance Macro strategist, Jay deGraaf cited an example using gold. Gold prices largely traded range-bound since the beginning of September to the beginning of December as investors ditched gold for more of liquid stocks. But despite this, the price of gold has soared higher. Gold prices for a straight-seven weeks were high. This high momentum spread to the VanEck Vectors Goldminder ETF, and Renaissance Macro noted that this has notched a 5% gain in the past two sessions. It is worthy to note that, silver prices have been up by about 6% since November, while Copper has strengthened to the tune of 7% in December...

As for the rally on, Jay deGraaf says, “With a drop in extreme bullish sentiment and now a breakout above resistance, we think in the early days of 2020, gold and silver are poised to challenge their highs from September. As momentum begins to build in gold and silver, we are comfortable chasing strength and would absolutely be buying dips.”

An inflating bubble seems to be evident from the recent high prices of some selected stocks. Last month, shares of Advanced Micro Devices (AMD) soared by about 20%, and trended as one of the hottest tickers on several stock platforms. This is an indication that traders are chasing momentums and not scrutinizing the company’s inflation valuation.

There are reports that stocks of Apple (AAPL) and Tesla (TSLA) could be dragged into the bubble camp as well. This is because stocks of Apple was up by about 10% in December, bringing its year-to-date gain to 83%. Tesla’s stock is hovering around a record after tacking on a cool 32% this month.

Hamman thinks the Fed’s actions are “driving up prices everywhere.” He cautions that if the Fed signals a change in interest rate policy by the middle of 2020, the bubble could explode. He said, “It could be a huge bubble, and we could see huge declines — 50% and 60% declines that happen quickly before you have a chance to react to them.”

From now till when Hamman's prediction possibly plays out, Investing Port will eye on the stock markets and bring useful updates.