Some have compared the recent retail investors’ enthusiasm to that of the dot-com bubble. “The key parallel between 2000 and today is that retail investors are seeing the stock market as a can’t miss opportunity,” said an unnamed source.
Whether this parallel holds or not, the data is pretty clear that the recent market rally is filled with some irrational exuberance. It may last a while, but if history is a guide, a happy ending is unlikely.
In his latest memo, Howard Marks (Trades, Portfolio) ended with the following words, which I find myself agreeing with:
“A bounce from the depressed levels of late March was warranted at some point, but it came surprisingly early and quickly went incredibly far. The S&P 500 closed last night at 3,113, down only 8% from an all-time high struck in trouble-free times. As such, it seems to me that the potential for further gains from things turning out better than expected or valuations continuing to expand doesn’t fully compensate for the risk of decline from events disappointing or multiples contracting.
In other words, the fundamental outlook may be positive on balance, but with listed security prices where they are, the odds aren’t in investors’ favor.”
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