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Yahoo
4 days ago
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If you're feeling FOMO, envy and greed about record stock prices, you're not alone. That's how market bubbles form.
Some stock-market contrarians reassuringly say that investors' current concern that the S&P 500 SPX, the Dow Jones Industrial Average DJIA and the Nasdaq COMP are all forming a frothy U.S. market bubble is exactly why the market isn't in one. But a market bubble can materialize even when most investors are worried about one. Like now. A recent Bank of America fund-manager survey found that a record 91% of survey participants believe the stock market is overvalued, and Google Trends shows a sizable increase in recent weeks in the number of finance-related searches focusing on bubbles, as you can see from the chart below. 'I am a senior citizen': My car needs $3,500 for repairs, but only has a trade-in value of $6,000. Do I bother fixing it? Clash of the titans: The hottest momentum stock meets the most notorious short seller When it comes to bubbles, contrarian analysis typically gets it wrong. An analysis of past bubbles suggests not only that widespread concern about bubbles is consistent with one forming — such worry actually plays a central role in a bubble's latter stages. Consider the definition of bubbles from Robert Shiller, the Yale University finance professor who won a Nobel prize in large part because of his research into stock-market bubbles. In his 2000 book 'Irrational Exuberance,' Shiller wrote that a bubble is self-perpetuating: 'News of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases and bringing in a larger and larger class of investors.' Shiller added that these newcomers, 'despite doubts about the real value of an investment, are drawn to it partly through envy of others' successes and partly through a gambler's excitement.' Notice from Shiller's description that bubbles involve a high degree of cognitive dissonance: Despite concern about stocks' overvaluation, investors bet heavily on equities. This dissonance is readily apparent in the Bank of America survey, for example: Even though 91% of survey respondents say that stocks are overvalued, they on balance are more bullish than they've been in months. Investors resolve the dissonance by telling themselves they will know when the bubble is about to burst and get out in time. But the history of bubbles teaches us that this belief represents a triumph of hope over experience. It's simply the greater-fool theory in disguise. AI illustrates how quickly a bubble can burst. Earlier this week the company reported preliminary results for its July quarter that fell far short of analyst expectations, and its stock plunged almost 26% in a single session. It's true that significant differences exist between the current market and the top of the internet bubble, as Daniel Newman, CEO of the Futurum Group, recently argued in a MarketWatch column. But no two bubbles are alike, and the existence of differences between today and early 2000 doesn't mean we're not in a bubble. As I recently pointed out, 10 time-tested valuation indicators show today's stock market to be more overvalued than those at any other time in U.S. history. Benjamin Graham, the father of fundamental analysis and author of the investing classic 'The Intelligent Investor,' made fun of the greater-fool theory by telling a joke, which Warren Buffett of Berkshire Hathaway retold in his 1985 shareholder letter: 'An oil prospector, moving to his heavenly reward, was met by St. Peter with bad news. 'You're qualified for residence,' said St. Peter, 'but, as you can see, the compound reserved for oil men is packed. There's no way to squeeze you in.' After thinking a moment, the prospector asked if he might say just four words to the present occupants. That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, 'Oil discovered in hell.' Immediately the gate to the compound opened and all of the oil men marched out to head for the nether regions. Impressed, St. Peter invited the prospector to move in and make himself comfortable. The prospector paused. 'No,' he said, 'I think I'll go along with the rest of the boys. There might be some truth to that rumor after all.' ' The bottom line? Contrarians are wrong in thinking a bubble can't be forming just because there is widespread current concern about stock-market overvaluation. Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at More: 10 stocks with recently increased dividends — and why they merit a closer look Also read: Why your stock portfolio may actually 'feel' depressed that summer is almost over 'Am I delusional?' My wife and I are in our 50s and have $11 million. We're not leaving it to our kids. Is that wrong? CoreWeave's lockup is about to expire. What that could mean for the stock.
Yahoo
22-05-2025
- Business
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As bitcoin hits another record high, why smaller crypto coins still lag behind
Bitcoin has hit another record high. But it hasn't brought other cryptocurrencies along for the ride. The largest cryptocurrency BTCUSD briefly traded at $109,497 on Wednesday, an all-time high, surpassing its previous high of $109,225 set on Jan. 20, President Donald Trump's inauguration day. Bitcoin rallied along with gold GC00, while stocks tumbled Wednesday afternoon, with the Dow Jones Industrial Average DJIA recording its worst day in a month. My ex-wife said she should have been compensated for working part time during our marriage. Do I owe her? 30-year Treasury yield is above 5% again — that's usually a bad sign for stocks My brother's 'good daughter' siphoned $70,000 from her father's accounts. Should she still get an inheritance? Bond 'vigilantes' are sending warnings globally. What does that mean for your portfolio? Three bank stocks to avoid — and 18 to buy — from analysts at Jefferies However, most other smaller cryptocurrencies were not performing as well. Ether ETHUSD, the second-largest cryptocurrency, was still 64% below its record high at $4,105 set in November 2021, though it has traded up 45% over the past 30 days. XRP XRPUSD, the fourth-largest crypto following Tether USDTUSD, a stablecoin with its value pegged to the U.S. dollar, traded 29% below its all-time high reached in January. Solana SOLUSD, often considered a strong competitor to ether, was 36.6% away from its record high recorded in January. Read: For altcoins to catch up, investors will need to see a clear breakout in bitcoin's price above its previous all-time high, according to John Glover, chief investment officer at crypto financial-service firm Ledn. Altcoins, which refer to cryptocurrencies with market capitalization smaller than bitcoin's, often follow bitcoin's rally, Glover said in emailed comments. A clear breakout means that bitcoin needs to trade above $110,000 for at least 24 hours, Glover added. 'That way you get the market across the globe to react to the 'breakout,'' he said. Altcoins will also need to see more regulatory clarity, which has already benefited bitcoin and helped it attract more institutional attention, according to Gerry O'Shea, head of global market insights at crypto asset-management firm Hashdex. While there have been exchange-traded funds investing in bitcoin and ether, there haven't been such products investing directly in other cryptocurrencies. In positive news for the industry, a bill aiming to regulate stablecoins, or cryptocurrencies with their value pegged to another asset, moved through a procedural vote on Monday, allowing Senate Republican leaders to bring the legislation to the floor for a final vote, which could happen as soon as this week. If enacted, the legislation could power more stablecoin adoption and benefit the blockchains where the stablecoins are issued, such as Ethereum, O'Shea said. U.S. budget deficits are reaching the tipping point where they could start hurting stocks My father's widow keeps sending me $200 checks in the mail. Why would she do this? I'm 57 and ready to retire next year on $7,500 a month, but my wife says no. Who's right? My husband and I spend more money on our daughter and her family than on my single son. Do we compensate him? 'What we found horrified us': My elderly relative mistook charity envelopes for overdue bills — and gave thousands to other family members Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
17-05-2025
- Business
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Why Friday's options expiration could send this historic stock-market rally skidding to a halt
After a wild month for the market, investors are sitting on a heap of bullish call options that will expire on Friday as monthly contracts for May come due. Options dealers' hedging of these long positions has helped push stocks higher over the past couple of weeks, according to Brent Kochuba, founder of SpotGamma, an options data and analytics company. Why Friday's options expiration could send this historic stock-market rally skidding to a halt My husband and I spend more money on our daughter and her family than on my single son. Do we compensate him? The U.S. just lost its last pristine credit rating. What that means for markets. Warren Buffett's Berkshire Hathaway dumps Citigroup stake, trims Bank of America, Capital One 'We're not wealthy': My niece is marrying out of state and she has a honeymoon fund. Is that cheeky? But once they are no longer active, the market's torrid rebound could stall out. 'I argue that the unwinding of the call values both lead to bearish hedging flows, but also a stalling in momentum. This is more skewed towards calls than I've ever seen it,' Kochuba said in response to questions from MarketWatch via email. Just how skewed toward calls can be seen in the table below, courtesy of SpotGamma. SpotGamma's calculations adjust each contract for how close it is to being profitable at expiration, based on current market prices. Another popular methodology used by investment banks like Goldman Sachs puts the total value of contracts expiring on Friday at $3.4 trillion, a fairly average amount for a monthly expiration, Kochuba said. Investors' shift toward call buying has become more pronounced over the past couple of weeks as stocks continued to climb. As of Wednesday's close, the Cboe total put-call ratio has fallen back to 0.7, its lowest level since Feb. 14, according to Dow Jones Market Data. Back then, stocks were trading just shy of record highs. When investors' buying is more heavily slanted toward calls, options market makers typically need to hedge their exposure by buying more stocks or stock futures. Following a burst of volatility in April provoked by President Trump's aggressive tariff agenda, the Cboe Volatility Index VIX has retreated at the fastest pace on record. Meanwhile, the S&P 500 SPX has risen by more than 18% since its April 8 closing low, FactSet data showed. See: Wall Street's fear gauge just dropped with striking speed. What historically comes next for stocks? Danny Kirsch, head of options at Piper Sandler, offered up a similar interpretation to Kochuba. Kirsch said he expected to see more volatility seep back into stocks starting next week once options dealers no longer needed to hedge so much long exposure. 'Next week should open back up,' he told MarketWatch via email. After seeing modest weakness earlier in the session, U.S. stocks had bounced back in afternoon trading Thursday. The S&P 500 was up by 21 points, or 0.4%, at 5,914, while the Dow Jones Industrial Average DJIA was up by 166 points, or 0.4%, at 42,218. The Nasdaq Composite COMP was up by 20 points, or 0.1%, at 19,167. Call options give the holder the right, but not the obligation, to buy an underlying asset at an agreed-upon price, known as the strike price, before an agreed-upon time, known as the expiration date. Similarly, a bearish put option gives the holder the right to sell an asset at an agreed-upon strike price before a given date. How Europe's best investor picks stocks including GE Aerospace and Microsoft These $5,000 bonds can help you fix a stock-heavy portfolio The retail buy-the-dip move paid off. What that crowd of investors is doing now, according to JPMorgan. 'I am scared to death that I'll run out of money': My wife and I are in our 50s and have $4.4 million. Can we retire early? I have $50,000 in credit-card debt after my divorce, but received $30,000 after a car wreck. Do I buy a used Lexus? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
03-05-2025
- Business
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‘Retirement is within my grasp': I'm 57, my 401(k) is dropping and I'm feeling anxious about a recession. What can I do?
It looks like a recession is on the horizon. Surely the time has come to take action. I've noticed you've been giving people advice on what to do or, more precisely, what not to do in the weeks and months since the election of President Donald Trump and his announcement of tariffs. I don't pretend to understand all the details, but I do know that the market has suffered and, along with it, my 401(k). I'm 57, and retirement is within my grasp. The economy appears to be slowing down. What can I do, if anything? I feel like I'm fiddling while Wall Street burns. Warren Buffett proves, once again, why he's the best 'We are the most privileged': My husband and I are tired of paying for our friends. How do we get them to pay their way? 'Retirement is within my grasp': I'm 57, my 401(k) is dropping and I'm feeling anxious about a recession. What can I do? My father is giving me $250K to buy a home, but told me not to tell my two siblings. Am I morally obligated to tell them? My eldest son refused to share his father's $500K inheritance with his siblings. Should I cut him off? That is dramatic language, but I would be less anxious if I was in my 30s or 40s. I'm looking for a roadmap. My friends say, 'Sit tight,' except for one who constantly goes on about checking his 401(k) and, sorry to say, that makes me feel even worse. I feel like every morning I wake up, wonder what's next, turn on the news or open my laptop, and there's more bad news. Give me five things I can do right now, and I won't blame you if they don't pan out. 50-something Related: Americans are 'doom buying' coffee, olive oil and soap. What's the one thing I should stockpile to avoid tariff price hikes? Wall Street isn't burning. It's processing. It's processing news — and responding accordingly. You're correct about the facts, as we know them. Your feelings and predictions can be managed separately. Gross domestic product contracted at a 0.3% annual rate in the first three months of 2025, the government announced Wednesday. This marks the first contraction in the economy since early 2022 and markets are, perhaps understandably, spooked. The S&P 500, Nasdaq COMP and Dow Jones Industrial Average DJIA get spooked on a regular basis. We're not in a recession. At least, not yet. 'The decline in GDP in the first quarter overstates the economy's weakness, but it is weak,' Moody's chief economist Mark Zandi said Wednesday. 'The threat of tariffs and DOGE cuts weighed heavily on the economy in the quarter. Most worrisome is the weak growth in consumer spending, and that is despite the boost to buying as consumers rushed to get ahead of the tariffs. The economy isn't in recession, but is on the precipice.' Most analysts see a recession as more likely than not. Some 60% of economists polled — 101 out of 167 — said the prospect of a recession this year was either high or very high, while 66 said it was low, according to a Reuters poll. Another poll of 41 professional business forecasters by the National Association for Business Economics said half of the participants place the probability of recession this year at 25% to 49%, while 37% put it at 50% or higher. Recessions come in all shapes and sizes. Over the last 80 years, there were 24 corrections in the S&P 500, with average market declines of 14%, according to IG Wealth Management. It usually takes around five months for a correction to reach its lowest point. Market crashes — defined as 'a sudden and drastic downturn across a major cross-section of a stock market' — are even rarer for the S&P 500, having happened only 13 times since 1950. Larger crashes of 30% or more are extremely rare: There have been six of them since 1950. Don't miss: America's job market is eerily similar to the 1990s dot-com bubble — and, yes, it's a worry 1. Stay invested for the long term. That is an action, and 'long term' means the next 10 years and the decades of your retirement. Remember that you won't cash out all your stocks on the day you retire. You will be making withdrawals from your 401(k) and, at some point in the future, claiming Social Security benefits. The clue is in the name: Your retirement funds should remain intact during your retirement. You could live to 80 or 90 or beyond, so you have many years ahead. 2. Save money in an emergency fund so you can handle the unexpected: a job loss, a health event or a new roof. During uncertain times, it's smart to have enough funds to cover at least six to 12 months' worth of expenses readily accessible, either in a high-yield savings account or a checking account. This also gives you something invaluable during a recession or stock-market downturn: peace of mind. 3. Buy what you need and don't panic and start stockpiling canned vegetables, olive oil or soap. But if you need a car for work and your current vehicle is on its last legs, this might be a good time to buy a new one. Americans — at least those who can afford to — are buying more cars, with new-car sales up 9% year over year to 1.59 million units in March as people rushed to upgrade before the new tariffs took effect. 4. Consult your financial adviser about your long-term retirement plan and review your portfolio. People in their late 50s should probably have roughly 60% of their savings in equities, 35% in bonds and 5% in cash. According to the '120 minus age' rule, you can subtract your age from 120 to determine what a sensible weighting in equities would be. (There's also the '100 minus age' rule, so opinions differ. It's a guide.) 5. Keep your faith and don't underestimate the U.S. economy. We've seen challenging times before, including the pandemic, the 2008 subprime-mortgage crash and the 2001 dot-com bubble. Trump inherited, by most measures, a strong economy from former President Joe Biden. Inflation had cooled, with the consumer-price index currently running below 3%. Unemployment was 4.2% in March. The labor-participation rate is over 80%. Don't miss: Trump's trade war has rattled investors — uncertainty is a call to action Whether you're concerned about a recession or a stock-market crash, it's natural to be nervous about the future, especially as you get older. Analysts suggest investing in consumer staples, along with real-estate investment trusts, healthcare and utilities. The financials sector may benefit from looser regulation. You wouldn't be human if you didn't care, but try to avoid using inflammatory language. It won't help you, and it won't help others when you share those worries. The past is a good indicator of the future. The last 15 recessions — roughly defined as two consecutive quarters of negative GDP — produced negative returns for 17 months on average, according to Russell Investments, with an annualized cumulative decline of 14.8% and an average drop in gross domestic product of 4.6%. A market correction, as you are probably aware, is a fall of 10% from a recent peak, and a bear market is defined as a 20% fall from a recent high. But the bull markets that follow market crashes are typically very long, IG Wealth Management says: 'During the early months of the COVID-19 pandemic, the S&P 500 SPX fell in value by 34%. The S&P 500 bounced back to its previous highs by November of 2020, taking around 8 months to fully recover, and had a gain of 15.6% by the end of the year.' For that reason, it's important to remain diversified and to look for opportunities for investment — but to avoid trying to time the market. Your mental health, after all, is as important as your financial health. When you wake up tomorrow, instead of turning on your laptop or TV, go for a walk. Clear your head. Plan a vacation or some activities, or get together with friends but make a pledge that you won't talk about your 401(k), the markets or whether a recession will happen. Some things are out of your control, but your long-term goals, along with your retirement, are still within your grasp. Inaction is sometimes overrated. Don't miss: I've made the most money over the last 30 years buying solid companies in terrible markets': Should I start buying? More columns from Quentin Fottrell: My portfolio lost 20%. With Trump's tariffs, do I sell stocks and buy gold? 'I'm not being a troll': I bought 'DJT' stock and I'm down 50%. What now? 'I have an out-of-state adviser in a Republican state': How can I tell if his political views influence his investment advice? Wall Street could be facing a long bear market, this viral report warns. Here's how investors can prepare. Markets are dealing with a new kind of shock. The S&P 500 might not have bottomed yet, says Goldman Sachs 'She's kept him afloat': I'm 78 and leaving my daughter, 41, my life savings, but her partner is a mooch. How can I protect her? Stock market's post-GDP whiplash shows it's 'foolish' to expect anything but volatility Trump's tariffs are America's Brexit, says this strategist. These are the trades to make. Sign in to access your portfolio
Yahoo
23-04-2025
- Business
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What the ‘fire Powell' trade could look like as Trump attacks Fed chair again
A rare mix of simultaneous selloffs in stocks, the dollar and long-dated Treasurys took hold on Monday after President Donald Trump lashed out again at Federal Reserve Chairman Jerome Powell in a way that investors fear threatens to undermine the central bank's independence. All three major U.S. stock indexes finished sharply lower, with the Dow Jones Industrial Average DJIA, S&P 500 SPX, and Nasdaq Composite COMP each falling by more than 2%. The yield on the 30-year Treasury bond BX:TMUBMUSD30Y spiked to a three-month high of almost 4.91% in an aggressive selloff of long-dated U.S. government debt. And the ICE U.S. Dollar Index DXY, a measure of the greenback against a basket of six other currencies, dropped 1% to a three-year low. The world needs the dollar, even a battered one, says this strategist. Here's how to play that. Americans are 'doom buying' coffee, olive oil and soap. What's the one thing I should stockpile to avoid tariff price hikes? What the 'fire Powell' trade could look like as Trump attacks Fed chair again The dollar will remain the world's reserve currency — for now. But stocks and bonds could keep struggling. How can I tell if my financial adviser's political opinions influence his investment advice? The combination of moves added up to the latest big selloff of U.S. assets as traders returned from a three-day weekend that included the Good Friday holiday. Now, strategists are mapping out what a dramatic, early departure for Powell — before his term as Fed chair ends in May 2026 — might look like in the financial markets. The answer is not very good. 'Were Powell to be fired, the initial reaction would be a huge injection of volatility into financial markets, and the most dramatic rush to the exit from U.S. assets that it is possible to imagine,' said Michael Brown, a senior research strategist at Pepperstone, an Australian-based provider of trading services. 'Lower, much lower, equities; Treasuries sold across the board; and, the dollar falling off a cliff,' Brown wrote in a note on Monday. Any sign of the longstanding, independent nature of the Fed coming under threat 'would see investors across the globe selling every single U.S.-based asset that they have, and also poses the genuinely scary prospect of upending the entire way in which the global financial system operates. If this were to happen, then the reserve status of the dollar, and haven value of Treasuries, would be wiped out, probably forever in both cases.' Brown isn't alone in his thinking about the long-run consequences currently facing U.S. assets. FHN Financial strategist Will Compernolle told MarketWatch that even if a court steps in to block any attempt to fire Powell, the damage to U.S. credibility might already be done. That's because court intervention may not be enough to restore foreign investors' trust that the management of U.S. monetary policy will remain free of political influence, he added. 'If you get to the courts, you've probably already lost the credibility in the eyes of the financial markets,' Compernolle said. Trump's disdain for the Fed chair was made clear last Thursday, when the president posted on his Truth Social account that Powell's termination 'cannot come fast enough!' He told reporters on the same day that 'if I want him out, he'll be out of there real fast, believe me.' The president's tirade came one day after Powell offered his starkest assessment of the likely impact of tariffs. Powell warned officials now face a challenging scenario of rising inflation amid labor-market weakening, and that they can wait for greater clarity before making any adjustments to interest rates. Read: 'It's just not done': Why Trump firing Powell could rock U.S. financial markets Trump is said to have already privately discussed a potential firing of Powell with former Fed Governor Kevin Warsh, who may be selected to replace him, according to the Wall Street Journal, which cited people familiar with the matter. Experts believe it will be difficult to fire the head of the central bank, and an amended version of the Federal Reserve Act makes it possible for a president to remove a Fed governor only for 'cause.'Michael Reynolds, vice president of investment strategy at Philadelphia-based Glenmede, which manages roughly $45 billion in assets, said: 'It is not our base case that Powell gets fired because we are not even sure the president has the ability to do that.' Nonetheless, 'investors, on the margin, are thinking about what these threats mean for the Fed's independence.'Via phone, Reynolds added that 'we are stopping short of pounding the alarm on the Fed's independence being a risk, and don't want to play the hypothetical scenario of what a 'fire Powell' trade will look like yet.' On Friday, when stock and bond markets were closed for the Good Friday holiday, White House economic adviser Kevin Hassett said Trump's team was continuing to study the option of firing Powell. Then on Monday, Trump took another swipe at Powell in another online post which said 'there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.' Krishna Guha, vice chairman of Evercore ISI, and others at the New York-based firm said Monday's market action sends a clear signal that 'risk to Fed independence is negative for all major U.S. asset classes and provides a partial foretaste of what might come if President Trump — who again tweeted his demand for preemptive Fed rate cuts — were to actually try to fire Powell.' They added: 'We still think, more likely than not, Trump will not actually try to fire Powell and will instead blame him for the tariff-led downturn ahead. But the risk is enough to move markets,' with an 'extremely rare' combination of lower U.S. bond prices, stocks and dollar being seen on Monday. The moves 'indicate higher risk premia is being required to hold U.S. assets' as investors reallocate into foreign assets and gold GC00. If Trump were to try to fire Powell, according to the Evercore ISI team, 'this would manifest in a shift from recession to stagflation trades.' Joseph Adinolfi contributed. As tariffs stoke fears of supply-chain disruptions, here's where Vanguard sees demand for bonds My husband will inherit $180K. I think we should invest the money. He wants to pay off his $168K mortgage. Who's right? What to expect when you're expecting a recession: a guide for investors My friend cleaned out her father's bank account and takes vacations using credit cards. Should I intervene? These 15 tech stocks could rocket up to 85% in a year — and analysts love them Sign in to access your portfolio
