As stocks stumble and cryptocurrency markets reel from a steep $400 billion correction, JPMorgan analysts warned in a Monday morning research note that other risky pockets in the broader market, including buzzy special purpose-acquisition companies and clean-energy stocks, are starting to approach bear market territory, unraveling the massive gains priced in under the longest bull market in history as investors worry about problematic inflation ahead.
Though global stocks are only down 2.5% from their peaks in April and May, some stock indexes—including the tech-heavy Nasdaq—are down about twice as much in a telltale sign that “markets are expensive and inflation is running hot” enough to doubt the central bank policy that’s been supporting economic growth, JPMorgan analysts wrote in a Monday note.
Headlining the stark reversal of fortunes, the value of the world’s cryptocurrencies—after roughly tripling this year—has crashed nearly 18% from a Wednesday high due in large part to a slew of negative tweets from billionaire Elon Musk, a vocal cryptosupporter who’s recently soured on the world’s largest cryptocurrency.
Meanwhile, clean energy stocks, which tripled last year in anticipation of sweeping progressive climate legislation, have fallen more than 35% since January as the broader tech sector slips and inflation hikes up the prices of the commodities necessary to manufacture products in the field.
Blockbuster public-market debuts have been a hallmark of the pandemic stock market—with new listings from Airbnb, Coinbase, DoorDash and more—but after soaring more than 100% in a year to a peak in February, newly listed U.S. stocks are down 26%, according to the Renaissance IPO ETF.
It gets even worse for SPACs (themselves a frothy market indicator) and the companies they’ve taken public, which have plummeted an average of nearly 38% from a February high, according to the first-ever SPAC ETF.
That big drop is in line with the 34% plunge the ARK Innovation ETF—a fund invested in “disruptive” tech and whose biggest holding is Tesla—has witnessed since February.
“All of these moves are consistent with a chain reaction that occurs when markets are expensive . . . but the ecosystem connecting the economy, markets and the [Federal Reserve] isn’t a nuclear power plant destined for meltdown,” JPMorgan analysts led by John Normand wrote Monday, pointing out that past market cycles have shown about 80% of “seemingly expensive asset classes” that crash in one business cycle end up returning to previous highs in the next cycle.
Analysts agree that the Federal Reserve’s unprecedented pandemic stimulus efforts have helped lift stocks and other assets to meteoric new price highs. However, concerns that pent-up demand and an economy awash with cash could spark problematic inflation and force the Fed to rethink its policy are now starting to rock the market. Stocks posted their worst week in three months last week, and at the same time, other assets have become increasingly sensitive to unpredictable shocks—most notably in the crypto market’s volatile reactions to Musk’s hot-and-cold tweets.
What To Watch For
“An inflation-induced stock market correction is possible, but an inflation-fueled shift in market leadership is more likely,” analysts at wealth advisory Glenmede wrote in a Monday note to clients, echoing commentary from other experts predicting that value stocks in recently hard-hit sectors like energy and financials will lead the market this year, as opposed to longtime market leaders in technology.
Noteworthy investments to protect against inflation include energy stocks, gold and Treasury bonds indexed to inflation (also known as TIPS).
Elon Musk Sends Bitcoin Tumbling With A One-Word Tweet (Forbes)
These Solar Stocks Were Among The Worst Performers Of The Week. Here’s Why. (Forbes)
Stocks Finish Rough Week Down Over Rising Inflation Fears (Forbes)
I’m a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at email@example.com.
Source: The 12 Best Laptops For Working, Studying, Creating And Playing Anywhere You Can Imagine
- Galbraith, J. The Great Crash 1929, 1988 edition, Houghton Mifflin Co. Boston, p.xii-xvii
- Farrell, Paul B. (February 19, 2014). “Crash of 2014: Like 1929, you’ll never hear it coming”. Marketwatch.
- De la Vega, Joseph: Confusión de confusiones (1688): Portions Descriptive of the Amsterdam Stock Exchange. Selected and translated by Hermann Kellenbenz. (Cambridge, MA: Baker Library, Harvard Graduate School of Business Administration, 1957)
- Stringham, Edward Peter; Curott, Nicholas A. (2015), ‘On the Origins of Stock Markets,’ [Chapter 14, Part IV: Institutions and Organizations]; in The Oxford Handbook of Austrian Economics, edited by Peter J. Boettke and Christopher J. Coyne. (Oxford University Press, 2015, ISBN 978-0199811762), pp. 324–344
- Brooks, John (1968). Business Adventures: Twelve Classic Tales from the World of Wall Street. Weybright & Talley. ISBN 9781497638853.
- Goetzmann, William N.; Rouwenhorst, K. Geert (2005). The Origins of Value: The Financial Innovations that Created Modern Capital Markets. Oxford University Press. pp. 165–175. ISBN 9780195175714.
- Petram, Lodewijk (2014). The World’s First Stock Exchange: How the Amsterdam Market for Dutch East India Company Shares Became a Modern Securities Market, 1602–1700. Translated from the Dutch by Lynne Richards. Columbia University Press. ISBN 9780231537322.
- Macaulay, Catherine R. (2015). “Capitalism’s renaissance? The potential of repositioning the financial ‘meta-economy'”. (Futures, Volume 68, April 2015, p. 5–18)
- “AMERICAN BANKS “IN THE JUNGLE““. The Advertiser. Adelaide. March 16, 1933. p. 8 – via National Library of Australia.
- “Born of a Panic: Forming the Fed System”. Federal Reserve Bank of Minneapolis.
- Tucker, Abigail (October 9, 2008). “The Financial Panic of 1907: Running from History”. Smithsonian Magazine.
- “Panic of 1907: J.P. Morgan Saves the Day”.
- Nocholas, Tom. Stock market swings and the value of innovation. Boston: Harvard Business School.
- “Preliminary Observations on the October 1987 Crash” (PDF). Government Accountability Office. January 1988.
- U.S. GAO op. cit. p.55
- Sornette, Didier Sornette (2003). “Critical Market Crashes”. Physics Reports. 378 (1): 1–98. arXiv:cond-mat/0301543. Bibcode:2003PhR…378….1S. doi:10.1016/S0370-1573(02)00634-8. S2CID 12847333.
- U.S. GAO op. cit. p.37
- — What caused the Stock Market Crash of 1987?
- “BBC NEWS – Business – IMF approves $2.1bn Iceland loan”. BBC News. November 20, 2008.
- LETZING, JOHN (October 10, 2008). “Two banks fold, bringing total to 15 failures this year”. MarketWatch.
- Wroughton, Lesley; Murphy, Francois (October 11, 2008). “IMF warns of financial meltdown”. Reuters.
- Wighton, David (October 11, 2008). “‘It’s irrational fear. The markets will trash anything that walks‘“. The Times.
Surowiecki, James (January 5, 2009). “WHAT PRECIPITATED THE STOCK MARKET CRASH OF 2008?”. The New Yorker.