Expert Warns Bubble Criteria ‘Have Now Been Met’
- Stocks are in bubble territory, Richard Bernstein said in a recent note.
- He said cryptocurrencies are also in a bubble.
- He shared how to best invest in the stock market during a bubble period.
It’s a question that comes up when asset prices soar to astronomical levels like they have this year: Are we in a bubble?
For Richard Bernstein — a 39-year market veteran who Institutional Investor put into its “Hall of Fame” — the answer is yes, at least for large swaths of the stock market and for the crypto space.
The S&P 500 hit all-time-highs on Friday, crossing above 4,600 for the first time ever. Technology and disruptive stocks are the most inflated, Bernstein said in a recent note. Alphabet, Microsoft, Apple, Amazon, Tesla, and Meta Platforms (formerly Facebook) make up about 25% of the S&P 500.
Crypto prices have mostly shot up as well. Bitcoin is up more than 42% since September 30. Ethereum is up almost 48% in that time. The joke coin shiba inu is up 957% over the same period.
But why is Bernstein, a former chief strategist at Merril Lynch who now runs Richard Bernstein Advisors, so sure that stocks and crypto are in a bubble? Earlier this year, he laid out his bubble criteria, shown in the flow chart below.
Richard Bernstein Advisors
These criteria have been met, he reiterated in a recent note after first saying so in June.
Since the pandemic began, the Federal Reserve has flooded the market with massive monetary stimulus, buying assets and pinning down interest rates. Congress has passed unprecedented amounts of fiscal stimulus. About a third of the money in circulation in the US today was printed during the last 18 months.
Federal Reserve Bank of St. Louis
Speculation has run wild in stocks over the last year-plus, with retail traders piling into meme stocks like AMC and GameStop. The same has happened in crypto with dogecoin and now shiba inu.
The yield curve, which shows yields for…