LONDON: Wall Street bankers warned of toppy stock markets and a looming near-term retreat after exuberance from unprecedented economic stimulus has led to “frothy” asset prices.
BofA’s latest weekly fund flow data on Friday reflected some of that sentiment, with investors storming into money markets and gold funds while pulling some money out of emerging markets that had attracted billions of dollars over the past 16 weeks.
U.S. stocks, however, were the standout performer with inflows of US$10 billion.
In the week to Wednesday, cash funds attracted US$29.1 billion and gold US$1.5 billion, marking the largest inflow since August, the U.S. investment bank said.
“Sell the vaccine: frothy prices, greedy positioning, inflationary and desperate policymakers, peaky China and consumer all ultimately (a) toxic brew in 2021,” said BofA’s chief investment strategist Michael Hartnett.
The recent buying spree has sent U.S. stock valuations soaring to 23 times 12-month forward earnings – levels hit during the peak of the dotcom bubble in the late 1990s. The numbers prompted Citi to downgrade the region to “neutral” from “overweight” on Thursday.
Stock valuations approach late 90s levels https://fingfx.thomsonreuters.com/gfx/buzz/oakvejbmmpr/Pastedper cent20imageper cent201610109547153.png
Citi, however, was bullish on British and emerging market stocks, citing “reasonable” valuations.
BofA said the 2020 trend to “buy everything” had trickled into 2021, but it expects a slowdown in risk assets as “policy, positioning and profits” peak around the end of the first quarter.
Goldman Sachs’ Chief Executive David Solomon said he was preparing for more stock market volatility, particularly in the near term, and sees some “excess in markets”, Axios reported on Thursday.