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• Goldman Sachs sees multiple bubbles in the market
• Not every bubble is dangerous for the overall market
• However, one area could drag everything down
Although the corona pandemic is still raging, it is now less and less noticeable on the stock markets. The price slump of historic proportions, which at the end of March 2020 caused the stock market barometer to plummet in double digits within a few days – the uncertainty in connection with the spread of the coronavirus and the associated uncertain economic effects suddenly became too great is sure to be unforgettable for every stock market operator. But there is currently no sign of this – at least if you look at developments in the stock markets since the collapse. Since then things have been steadily improving, albeit with a few setbacks here and there. For many indices, it even went to completely new heights despite the existing uncertainty.
The fear of bladder is going on
The reasons for this are numerous and have already been described many times. The low interest rate environment makes the capital market virtually inevitable as an investment option, the stricter initial regulations drove numerous new market participants to the online trading venues, plus the ultra-relaxed one Monetary policy of central banks flooding the market with almost unlimited liquidity. All of this has led to the current “buy everything” mentality, which meanwhile also avoids the fear of a gigantic bubble in the market – similar to the dot-com bubble in 2000 – among stock market operators.
And how can you not think of a bubble when some share prices have strayed so far from the fundamental data that even the experts no longer have an explanation, see Tesla. Or the latest example that has caused a sensation internationally, the GameStop share. The paper of the ailing computer games retailer showed an extreme trading range in NYSE trading on Monday, between $ 61.13 and $ 159.18. From trading, the share went 18 percent higher at $ 76.79. Since the beginning of the year alone, GameStop shares have risen by over hundreds of percent, which is mainly due to euphoric small investors who agreed on purchases in forums.
Negative income companies are becoming more popular
According to Goldman Sachs strategist David Kostin, it is generally a dangerous trend to invest in companies with negative operating results, as he announced in a note to customers that CNBC has received. But this is exactly what is currently the case. As a Reuters analysis of refinitive data shows, these same companies beat the broader index by almost 50 percentage points in the Russel 2000 last year. In this area Kostin therefore fears the bursting of a bubble: “These companies account for 16 percent of the equity trading volume, which is above the 15 percent in 2000”. However, the Goldman Sachs expert also points out that such companies would make up “only 5 percent of total market capitalization”, which is why a bursting of the bubble would represent “only a small risk for the broader market”.
SPAC IPOs a new trend
Kostin also sees another hype and the associated overvaluation in the SPAC IPOs that have become so popular last year. The so-called “Special Purpose Acquisition Companies” are companies that are listed on the stock exchange, but their only purpose is to take over other companies that are striving to go public, so that they can do so faster and more or less through the back door get onto the trading floor. According to Goldman, a total of 229 SPAC IPOs were carried out in the USA in 2020, with revenues of $ 76 billion. Since the beginning of 2021, 56 companies have already dared to take the step, which is why the US investment bank assumes that the trend is likely to continue: “Low interest rates, the flexible structure, and the window of two years to find a target company before capital is withdrawn suggest that the popularity of SPACs will continue in the short term “. But even if Kostin recognizes a bubble in these companies, the risk for the broader stock market from a burst is also low.
Beware of this section
But the US investment bank did not get along in its report to customers without warning and pointed to a part of the market that could well drag down the rest of the market if it bursts – stocks with an extremely high valuation and high price at the same time. Profit ratios. Because here too, Kostin would have observed that those companies where the ratio of company value to sales would be “over 20x” are currently enjoying extreme popularity. With the difference that these companies would have more weight than “companies with negative income or penny stocks” due to the larger volume of shares traded and a larger market capitalization.
Nevertheless, Kostin remains bullish overall. He sees the S&P 500 at 4,300 points by the end of 2021, which would correspond to an increase of around 11 percent. In addition, the Goldman strategist had one more advice for investors: “History shows that investors face bad opportunities when they buy extremely valued companies.”
Finanzen.net editorial team
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