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Illustration: Aïda Amer/Axios

Warnings that the U.S. equity market looks to be in a bubble are coming from a slew of Wall Street asset managers and strategists as stocks continue to reach new record highs and markets display abnormal behavior. But data show that while investors are hedging their bets, there is hardly a mad dash to sell out of equity positions.

What's happening: As the 10-year Treasury yield rises solidly above 1% — its highest level in nearly a year — a growing contingent of investors fear that a crash is imminent without the ballast of rock-bottom interest rates.

Driving the news: A recent survey from E-Trade of 904 active investors found that 66% say the stock market is either fully or somewhat in a bubble.

  • Another 26% said the stock market is "approaching a market bubble."

The signs: In addition to the increase in long-dated U.S. Treasury yields, the dollar is gaining steam, having risen for four straight sessions after approaching a nearly three-year low.

  • Bitcoin's mythical journey above $42,000 a coin (and its fall from those heights) is also causing some worry among market participants, especially after Monday when cryptocurrencies overall lost almost $200 billion of value.
  • Market valuations are historically stretched, especially the tech-heavy Nasdaq, which is trading at nearly 47 times its year-ago earnings and 34 times its earnings looking ahead the next 12 months, per FactSet.
  • Bank of America points out that U.S. financial assets are now six times (!!!) the size of U.S. GDP.

What they're saying: "The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble," Jeremy Grantham, co-founder and chief investment strategist at asset manager GMO, says in a note.

  • "Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000."

By the numbers: Despite the frenzied warnings from veteran investors like Grantham (the "G" in GMO), data from Bank of America show its wealthy private clients have increased equity holdings to an average of 61.7% of their portfolios, just below the record high level touched in 2015.

  • Deutsche Bank's asset allocation team noted that "the last two months of 2020 saw the largest flow into equity funds on record over such a period and the second largest as a [percentage] of AUM over the 10 year period they have data."

Yes, but: Investors also took cover last week, piling $29.1 billion into cash, $14.9 billion into bonds and $1.5 billion into gold. It marked the precious metal's largest inflow since August.

Go deeper

Jan 19, 2021 - Economy & Business

Netflix tops 200 million global subscribers

Illustration: Rebecca Zisser/Axios

Netflix said that it added another 8.5 million global subscribers last quarter, bringing its total number of paid subscribers globally to more than 200 million.

The big picture: Positive fourth-quarter results show Netflix's resiliency, despite increased competition and pandemic-related production headwinds.

58 mins ago - Politics & Policy

Stalemate over filibuster freezes Congress

Illustration: Sarah Grillo/Axios

Senate Majority Leader Chuck Schumer and Mitch McConnell's inability to quickly strike a deal on a power-sharing agreement in the new 50-50 Congress is slowing down everything from the confirmation of President Biden's nominees to Donald Trump's impeachment trial.

Why it matters: Whatever final stance Schumer takes on the stalemate, which largely comes down to Democrats wanting to use the legislative filibuster as leverage over Republicans, will be a signal of the level of hardball we should expect Democrats to play with Republicans in the new Senate.

Dave Lawler, author of World
1 hour ago - World

Biden opts for five-year extension of New START nuclear treaty with Russia

Putin at a military parade. Photo: Valya Egorshin/NurPhoto via Getty

President Biden will seek a five-year extension of the New START nuclear arms control pact with Russia before it expires on Feb. 5, senior officials told the Washington Post.

Why it matters: The 2010 treaty is the last remaining constraint on the arsenals of the world's two nuclear superpowers, limiting the number of deployed nuclear warheads and the bombers, missiles and submarines which can deliver them.

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