JPMorgan argues that the excess liquidity issue isn't going anywhere.
A stock market bubble is not a term that is bounced around lightly. It describes a situation where market participants drive stock prices far beyond reasonable company valuations, usually grounded in herd mentality. But when the bubble pops, it can bring down entire companies and wipe out investors' savings.
This is the outcome that worries investors now, according to JP Morgan, citing the huge gains in the IPO market, a"demand frenzy for SPAC vehicles", a surge in retail participation and the triple-digit percentage gains in individual stocks like electric car maker Tesla, or video conferencing platform Zoom, as well as cryptocurrencies, where digital tokens have, on occasion, doubled in value in the space of a day, with no obvious catalyst.The data backs this up.
The Fed's balance sheet grew by 80% last year and JPMorgan expects it to expand by another 20% this year before it eventually tapers its asset purchases. But this is unlikely to pose a threat to equity markets, the bank said. "We would use any dips as opportunities to add. We continue to believe that the style rotation that we positioned for in early November will have legs, and importantly that it will likely happen against a backdrop of rising markets," the note added.
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What were the stocks?