Cryptocurrencies and SPACs show signs of ‘irrational exuberance,’ but

• UBS’s Mark Haefele said in a Friday note that while cryptocurrencies and SPACs show signs of “irrational exuberance,” investors shouldn’t worry that the whole stock market is in a bubble. 
• Within the IPO and SPAC market and cryptocurrencies, prices are discounting future rapid price appreciation, a factor that’s typically present during market bubbles, said Haefele.
• But large parts of the stock market are not expensively valued by historical comparison, the chief investment officer of global wealth management said. 
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While many parts of the market are showing signs of  “irrational exuberance” that should alarm some investors, UBS’s Mark Haefele says there are still some risk assets outside of bubble territory.

“All of the bubble preconditions are in place,” he explained in a Friday note, citing record low financing costs, new participants entering into the market, and a combination of historically low interest rates and high savings rates from government stimulus that’s left investors who are searching for returns with no alternative but equities.

However, Haefele said that while parts of the market seem speculative, investors shouldn’t worry that the whole market is in a bubble.

“The cryptocurrency markets are exhibiting signs of excessive speculation and the IPO/SPAC markets are the hottest in two decades. But these markets do not yet pose a broader systemic risk,” the chief investment officer of global wealth management said.

Within the IPO and SPAC market, as well as crypto, prices are discounting future rapid price appreciation, a factor that’s typically present during market bubbles, said Haefele.

Speculation is pushing up prices for bitcoin, especially as major investors raise their long-term price targets for the coin, like Guggenheim’s Scott Minerd who sees bitcoin hitting $400,000 in the future.

Read more: Global X’s lithium and battery ETF returned 126% in 2020 as electric vehicle-driven demand surged. One of the firm’s analysts shared 4 stocks he sees ‘leading the rise’ in the industry going forward.

First-day IPO performance is also the strongest in around two decades. Airbnb leaped 115% on its first day of trading, while DoorDash opened 78% higher than its offer price. SPACs raised more than $70 billion in 2020, more than the entire prior decade combined, he said.

But equities as a whole are not in a bubble, said Haefele. For one, he explained that large parts of the market are not expensively valued by historical comparison. Removing Facebook, Amazon, Apple, Microsoft, Netflix, and Google, the S&P 500 only rose 6% in 2020. 

He also said that valuations of indices look reasonable against the backdrop of low interest rates, and used an equity risk premium approach to…