Mania has taken hold in the equity market and there is “no respect” for risk, says one strategist
Veggie-foods maker Beyond Meat BYND, +4.07% trades at 282 times estimated earnings. Tesla’s TSLA, +6.81% stock price has doubled this year. Virgin Galactic’s SPCE, +10.13% stock price has nearly tripled in 2020.
The world’s most profitable company, Apple AAPL, +1.66%, withdraws its revenue guidance, and the technology-heavy Nasdaq Composite actually closes higher on the day.
Mike O’Rourke, chief market strategist at institutional broker JonesTrading, says a “mania” has taken hold, blaming zero-commission retail brokers, the Federal Reserve’s injections of liquidity, the forced buying from index fund managers, and active fund managers who are too scared not to follow suit.
“The bottom line is there is no respect for risk in the equity market and mania is not indefinitely sustainable, there is no permanently high plateau,” he writes in a note referencing Rodney Dangerfield, the comedian who famously couldn’t command respect.
John Rekenthaler, a columnist at fund-ranking service Morningstar, attempted to divine when investing becomes speculation. It wasn’t an easy task. The conclusion he reached is that an expenditure when the return is too uncertain or likely negative is speculation. But even that is too simple a definition, he writes.
“Securities with barely positive expected returns and extremely high volatility are speculative — unless their performance is negatively correlated with the rest of one’s portfolio, in which case the investment may be warranted,” he says.
There is a record high level of unused share buyback capacity, according to JPMorgan, leading the bank to think buyback announcements will decrease. Higher valuations also may tempt companies away from new buybacks. Instead, companies may focus on capital expenditure, dividends and mergers and acquisitions, the bank said.
SpaceX says it will send up to four private citizens into orbit.
The latest Brexit fight is over the fate of the Elgin marbles.
British condom brand Durex has created its own font, called “one night sans.”
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