NASDAQ 100 continues to print money for investors

The NASDAQ 100 continues to see Green, with the index up almost 1% today. In the past 120 days, the NASDAQ 100 is up 70% from its March lows, with only 42 days in red.

Market consensus is that the recent rise in equities is primarily due to the Fed’s wave of liquidity, not an uncommon view. However, it is interesting to note that recently dovish outlooks from Central banks have implicitly become a buy symbol as it means the Fed will continue to shower the market with liquidity, with investors and traders betting on that liquidity, making it into the markets. Chris Gaffney, president of the world markets at TIAA Bank, stated that “Negative real yields across the globe are almost forcing people to find investments that have a potential for gain.”

Is there more room for the NASDAQ to run?

I believe if the Fed continues to provide accommodative financial support to the economy, equities – especially tech equities will continue to live in the perfect breeding ground to push higher. Tech stocks have outperformed most of the stock markets before the Coronavirus. However, they have proven to continue beat earnings the Coronavirus. Ie. In a world where tech stocks widen their outperformance during the pandemic alongside favorable financial conditions for risk-on assets, it easy to that it is a no brainer.

However, some analysts are getting concerned on the overstretched valuations; Maria Municchi stated that the markets are going to question whether the Fed’s inventions were helping companies to create money, saying that “At some point, investors start to ask, is this just liquidity that expands [money supply] or will it be liquidity contributing to earnings.”

It raises the question – is the NASDAQ 100 a bubble?

A general rule I have – if people who don’t associate themselves with investing start talking about a stock or something, you’re near the bubble’s peak. If that person’s mum starts talking about a stock, you’re at the bubble’s peak. Similar to Bitcoin in 2018, everyone and everyone’s dog were talking about Bitcoin. This year? That topic goes to Tesla.

To ride its wave on its popularity, Tesla plans a $5 Billion “at the market” offering. It’s an offering you first learn about in accounting 101, where the company takes authorized shares that are not public and offer them to the secondary market. This would dilute shareholders and require a high stock price to take the blow of the dilation – which Tesla has. They don’t need the money. But it’s an excellent way to leverage the stock price.

The reason I bring this up is that all the times’ investors have taken short positions on the company, a wave of bull investors would force a short squeeze, pushing the stock even higher. What’s the best way to bet against a bubble? There isn’t – however, there’s no reason for you too. If you are concerned about a drop – the best thing to do is sit it out.