Home / MARKETS / Cryptocurrencies and SPACs show signs of ‘irrational exuberance,’ but the stock market is not in a bubble, says UBS

Cryptocurrencies and SPACs show signs of ‘irrational exuberance,’ but the stock market is not in a bubble, says UBS

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Purchasers working on the floor of the New York Stock Exchange are blur in this time exposure, just before the opening bell, 11 May, 2004.


  • UBS’s Mark Haefele said in a Friday note that while cryptocurrencies and SPACs show signs of “irrational effervescence,” investors shouldn’t worry that the whole stock market is in a bubble. 
  • Within the IPO and SPAC market and cryptocurrencies, valuations are discounting future rapid price appreciation, a factor that’s typically present during market bubbles, express Haefele.
  • But large parts of the stock market are not expensively valued by historical comparison, the chief investment officer of far-reaching wealth management said. 
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While multitudinous parts of the market are showing signs of  “irrational exuberance” that should alarm some investors, UBS’s Mark Haefele ventures 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 secretly low financing costs, new participants entering into the market, and a combination of historically low interest rates and high savings classes from government stimulus that’s left investors who are searching for returns with no alternative but equities.

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

“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 jeopardy,” the chief investment officer of global wealth management said.

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

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

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First-day IPO performance is also the strongest in approximately two decades. Airbnb leaped 115% on its first day of trading, while DoorDash opened 78% higher than its offering price. SPACs raised more than $70 billion in 2020, more than the entire prior decade united, 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 documented comparison. Removing Facebook, Amazon, Apple, Microsoft, Netflix, and Google, the S&P 500 only rose 6% in 2020. 

He also disclosed that valuations of indices look reasonable against the backdrop of low interest rates, and used an equity risk rare approach to explain why stocks still look cheap relative to bonds. 

Against that backdrop, he recommends investors “dream beyond the bubbles.”

“One reason that bubbles can be so deceptive is that there is often a grain of truth behind their statements. The dotcom bubble, for example, correctly anticipated the impact of the internet,” said Haefele. “Many of the narratives linked to today’s blisters may also prove to be correct. Investors may be able to capture some upside but reduce the risk associated with boils by identifying the narrative, yet investing in a more diversified way.” 

He reiterated his suggestion to investors to buy emerging technology investment themes fellow 5G, fintech, greentech, and healthtech, while staying diversified. He also said UBS is bullish on emerging market stocks.

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