Bigger stimulus? Here’s why now may be seen as the ‘peak of this bubble,’ warns strategist

Daily Updates


As the first full trading week of 2021 winds down, investors have pulled off no mean feat, driving stocks higher amid a deadly riot at the U.S. Capitol and the relentless COVID-19 pandemic.

One bright note for some is a new political dawn in the White House, with Democrats set to take control of both the House and Senate. That is albeit a thin margin, perhaps giving President-elect Joe Biden less power to spook markets with tax ambitions.

Helping fuel Friday’s gains is a report that Biden is considering a two-prong COVID-19 stimulus plan — $1,400 payments to Americans, adding to the $600 already agreed, followed by a $3 trillion tax and infrastructure plan.

That brings us to our call of the day, from JonesTrading’s chief market strategist Mike O’Rourke, who warns we may have reached a tipping point for all that investor enthusiasm.

“The expectation of $2,000 stimulus checks as part of an additional $1 trillion fiscal stimulus from the Biden administration has only fueled the incredibly exuberant animal spirits in the financial markets. Don’t be surprised if this latest (and what should be the last) bout of fiscal stimulus marks the peak of this bubble,” O’Rourke said in a note to clients.

“These developments are responsible for sending U.S. equities to new all-time highs the past couple of days including a 6% rally in the Russell 2000
RUT,
+1.89%
.
Fears about the printing and spending have sent bitcoin 17% higher over the past two days,” he added.

Bitcoin
BTCUSD,
+4.42%

on Friday moved above $41,00 and Thursday’s record. Those gains come as the dollar
DXY,
+0.08%

has also climbed, meaning cryptocurrency investors may not be protecting themselves from a dollar drop, said O’Rourke. They are “simply paying twice as much for an ‘asset’ than they were at Thanksgiving,” he said.

And Bank of America’s chief investment strategist Michael Hartnett told clients in a note on Friday to “sell the vaccine” news. That is as he noted “violent inflationary price action” over the last two months for assets like bitcoin.

Bubble warnings have also been heard this week from Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co.

But some have been going the other way. Credit Suisse’s U.S. equity strategist Jonathan Golub lifted his S&P 500
SPX,
+1.48%

year-end target to 4,200, from 4,050, partly on hopes for a stronger economic reopening as Democrats gain power in Washington.  

The markets

Stock futures
YM00,
+0.31%

ES00,
+0.33%

NQ00,
+0.55%

are rising, a day after the Dow industrials
DJIA,
+0.69%

closed above 31,000. European stocks
SXXP,
+0.61%

are mostly up, and Asian markets had a mixed day.

The buzz

December U.S. jobs data are ahead, with a slim gain of 50,000 expected, though some economists warn that may be optimistic amid the COVID-19 pandemic fallout.

The COVID-19 vaccine from U.S. drug company Pfizer
PFE,
+0.52%

and its German partner BioNTech
BNTX,
+2.78%

appears to protect against the new highly contagious U.K. and South African variants, says new research.

Amid calls for his ouster, President Donald Trump condemned Wednesday’s violence by a mob of his supporters, as he returned to Twitter
TWTR,
-1.75%

for the first time since a 12-hour ban. The violence has left five people dead, including a U.S. Capitol Police officer, and that department’s chief has now resigned. Meanwhile, education secretary Betsy DeVos became the second member of the Trump administration to quit in the wake of the riots.

Shares of Hyundai Motor
005380,
+19.42%

surged 20% in Seoul after the South Korean automobile maker confirmed talks with technology giant Apple
AAPL,
+3.41%

to create a self-driving electric car. The Korean Kospi
180721,
+3.97%

gained nearly 4%. One analyst says Apple could reach deals with other partners, even electric-car maker Tesla
TSLA,
+7.94%
.

Shares of Micron
MU,
+2.59%

are rising after the memory-chip maker’s earnings confirmed the industry has turned a corner.

Boeing
BA,
+0.80%

will pay more than $2.5 billion in penalties to settle charges that it misled U.S. aviation authorities over its 737 Max aircraft.

Chinese officials have locked down the capital of North China’s Hebei province, a city of 11 million, in a bid to stop a fresh COVID-19 outbreak.

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Identical twins aren’t so identical after all.

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