Pros are starting to say that valuations for the broader market and popular stocks like Nvidia (NVDA) are wildly overvalued.
“There is definitely some foam. [in markets]”There’s a lot of liquidity in the market. You’re seeing speculation through these meme stocks, so that’s what’s happening,” Ben Emmons, founder of Fed Watch Advisors, told Yahoo Finance editor-in-chief Brian Sozzi on Yahoo Finance’s Opening Bid podcast.
Emmons is not alone.
Morgan Stanley Chief Strategy Officer Mike Wilson warned this week that stocks could fall 10% ahead of the election, and is one of several experts worried about current stock valuations.
Nvidia’s stock was also hit with an unusual downgrade to neutral by New Street Research due to valuation concerns.
You can listen to every episode of “Opening Bid” on our website or on your favorite podcast platform.
Video Transcript
Are there conditions in today’s market that remind you of the ’87 crash?
And do you think we’re on the brink of that happening?
I’m calling for record high valuations.
We see Tesla’s market cap exceeding $3 trillion and rising for 89 consecutive days without any particular news or video.
To me it feels like an expensive market that’s not worth trading in the current market.
Yes, and like I said, that assessment is important.
But I also think that it’s ultimately a macroeconomic catalyst that makes people realize that the market has become too expensive, or maybe even overpriced.
And then there’s the realization that you have to get out of these expensive stocks.
For example, in the 90s a lot of comparisons were made between NVIDIA and Cisco, but they are two very different companies.
This is a general idea of ​​where AI is relative to internet time.
During the internet startup period in the late ’90s, there was definitely some cooling off, but there was a lot of liquidity in the market and we saw some speculation through this sector called meme stocks, right?
That it’s happening.
Well, I know if I read it again, volatility may be at the lower end of the historical range. It may be a boring report.
But the Fed’s market policy reports always contain interesting information.
That’s a whole section on financial stability.
What was striking to me was that they again mentioned hedge fund activity.
They are more influential now than they were a few years ago.
They are doing this huge trade, what’s called basis trading, where they’re basically trading Treasury futures for Treasury bonds.
That seems like a huge deal.
Like, as a former trader and PM, when I think back to when I was actually involved in that type of trading, I thought it was very gray area and it was unclear how he would specifically unwind it.
And I think this is another example of the situation where the Japanese yen is at its lowest level in almost 40 years.
And the yen is constantly being used as a borrowing vehicle to make risky bets called yen carry trades and acquire other assets.
The technical term is how that resolves for this valuation problem that we’re seeing in the stock market, which by the way, could go even higher, and it could get even more expensive before it actually resolves.
So to some extent I agree with the 1987 analogy. Today, we have high-frequency trading and algorithms and other issues that can obviously cause that very quickly.
That was before the flash crash or anything like it happened.
But ultimately, it’s for macroeconomic reasons that everything is unlimited.
Going back to our earlier discussion, what are the risks to the economy going forward?
right.
Deficits, tariffs, and various combinations of these policies also affect the economy.
That’s negative.
That’s what we’re actually waiting for.
And until that happens, we haven’t seen it yet.
People are paying attention to the number of jobless claims and the unemployment rate because if the unemployment rate rises too quickly, it can turn the economy upside down.
right.
Then the opportunity arises and we start going online.
So, I think as an investor, you’re going to look at these risks that are on the list and see what they’re going to do.
Meanwhile, you have no choice but to invest today.
Ok, so what is that opportunity?
Well, the market is doing well.
So you should invest.
I’m not keeping quiet.
