Valuations on the broader market and popular stocks such as Nvidia (NVDA) just feel too hot, pros are starting to chatter about.
“There’s definitely some level of froth [in markets],” Fed Watch Advisors founder Ben Emons told Yahoo Finance Executive Editor Brian Sozzi on Yahoo Finance’s Opening Bid podcast. “There’s a lot of liquidity in the market. You see speculation through these meme stocks — so that’s happening.”
Emons isn’t alone.
Morgan Stanley’s top strategist Mike Wilson warned this week of a 10% pullback in stocks ahead of the election. Wilson is among the experts on the worried about current stock valuations.
And Nvidia’s stock caught a rare downgrade to neutral by New Street Research on valuation concerns.
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Video Transcript
Are there conditions in place in today’s market that remind you of that 87 crash?
And do you think we could be on the precipice of something like that happening?
I’m calling out record high valuations.
I see Tesla up 89 days in a row for really no apparent news and video over a $3 trillion market cap.
To me, it feels like an expensive market that doesn’t deserve to trade where it’s trading at.
Yeah, and that valuation does matter as I as I’ve mentioned.
But I also think it’s about ultimately, it’s a macroeconomic trigger that that makes people aware of that the market is or was too expensive.
And then the realization sets in you have to get out of these expensive names.
Lots of uh comparisons have been made between NVIDIA, let’s say and Cisco in, in the nineties as an example, which are two very different companies.
And it just generally the idea of like where A I is versus the the internet time.
Uh the start up internet uh period in the late nineties, there’s definitely some level of frost is there, there’s a lot of liquidity in the market, you see speculation through this sector called meme stocks, right?
That that’s happening.
Uh We know we know that volatility may be on the lower end of the historical range if you read it again, boring report perhaps.
But the the market policy reports from the Fed, there’s always some interesting nuggets in there.
It’s a whole section about financial stability.
One thing that stood out to me is they’re making again a reference to what the hedge funds are doing.
They have more leverage on than they had several years ago.
They have this huge what they call basis trade on which is like playing basically the treasury futures versus treasury bonds.
That seems to be a massive trade.
I think if I think of that, for example, as a, as a as a former trader and PM, when I was really involved in that type of trades, those are like very murky areas, you know, that are unknown how exactly he’s going to unwind.
I think also the Japanese Yen is another example of the context yen is at the weakest level in, in almost 40 years.
And the yen is always used as a borrowing mechanism for taking risky bets and other assets called the Yen carry trade.
The technical term, how that’s gonna unwound against this valuation issue that we’re seeing in, in, in the stock market which could get even richer, by the way, it could be even more expensive before it actually unwinds.
So I do agree that the 1987 analogy, maybe to an extent there, we obviously have high frequency trading and algorithms and other issues today that could trigger that really quickly.
That’s happened before flash crashes and that sort of thing.
But at the end of the day, it’s a macroeconomic reason why it’s all unbound.
And to our early discussion, what’s the risk to the economy from here?
Right.
The deficit, the, the tariffs, uh the different combination of these policies also trigger an affecting the economy.
That’s negative.
That’s what we’re actually waiting for.
And we’re not seeing that yet until it does.
And people watch claim, jobless claims and the unemployment rate is one, you know, reason to be careful like it goes up too quick, too fast, the economy is flipping on his back.
Right.
And then the trigger is there and all the online start to happen.
So I think as an, as an investor, you would look at these, these, these risks as they’re there on the list, we know what they’re doing extend about.
On the other hand, you just got to invest today.
Ok. And what’s the opportunity?
Well, the market is in a good spirit.
So you should invest.
Not, not to be silent.
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