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The 12-year rise in the US stock market is increasingly scaring investors. And more and more analysts are calling the situation a bubble. However, there are just as many who do not see a bubble. There is a main fundamental factor which for some reason most analysts either forget or do not think about at all.
S&P 500
– 80% of companies now going public are unprofitable. That hasn’t happened in over 20 years, not since the dot-com crash.
– Non-residents bought $400 billion worth of U.S. stocks last year. The previous high was $200 billion and was recorded in 2007, just before the last financial crisis in 2008
– The broader index, which includes 2,000 US small-cap companies, is now almost 40% above its 200-day simple moving average. This has never been seen before in history.
– Fund managers have less than 4% cash on hand, with the rest already invested in assets
– The level of leveraged funds (leveraged trading), for US equities will soon approach $1 trillion
– VIX Fear Index is at multi-year lows
What can all this lead to? If there is a massive sell-off in equities, then leveraged buyers will be the first to suffer. They will close positions en masse, including on margin calls, pushing the price down even further. That makes sense. But it doesn’t answer the question, “Is there a bubble or not?”
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