Will Stocks Be Brady Or Mahomes?

One week, Reddit bandits take on hedge funds and win, pumping up stocks like GameStop (GME) and AMC (AMC) while the broader market sees its worst decline since October.

What a difference a week can make.

The indices then see their most significant gains the next week since Joe Biden's election victory and don't see a down day all week.

Now we're here- still amid a tug of war between sentiments. For now, though, things are looking rosy. That is, of course, unless you're Patrick Mahomes this morning.

Can the market keep up it’s winning streak this week? It’s possible. But I’d be surprised if we don’t see at least one sharp pullback before this Friday (Feb. 12).

Can the market keep up its winning streak this week? It's possible. But I'd be surprised if we don't see at least one sharp pullback this week.

Despite tailwinds moving the markets right now, such as stimulus progress, an ever-improving vaccine delivery, the possibility of an effective one-dose vaccine from Johnson and Johnson (JNJ), falling COVID numbers, and an improving economic outlook based on consistently falling jobless claims and corporate earnings that continue to crush, I want you to be wary of complacency and overvaluation.

Yes, I know I keep saying this. I also know that earnings are on pace to rise by over 20% in 2021. Since 1980, only 12 years have earnings increased by 15% or more. Except for 2018, the market gained an average of 12% in all of those years.

But consider some valuation metrics that scream “bubble.”

As of February 4, 2021, the Buffett Indicator , or the ratio of the total US stock market valuation to the GDP, was at a level not seen since the dotcom bubble. If you take the US stock market cap of $48.7 trillion and the estimated GDP of $21.7 trillion, we're nearly 224% overvalued and 84% above the historical average.

One week, Reddit bandits take on hedge funds and win, pumping up stocks like GameStop and AMC while the broader market sees its worst decline since October.

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Erikas Ivan 3 weeks ago Member's comment

Excellent article, I do agree that things are pointing out to a bubble with the tech valuations recently. I'm being patient with the correction, so I wouldn't make any emotional calls soon. Your recent ETF-Nasdaq correlation comments were spot too, so I'm looking forward to reading more. Cheers.

Matthew Levy, CFA 3 weeks ago Author's comment

Thanks Erikas Ivan! Patience is something that many investors are lacking nowadays. It's funny, long-term investing isn't seen as years anymore, it's months. Looking forward to providing more content!