Stocks aren’t in a bubble, but here’s what they are, according to fund manager Cathie Wood

Despite all the attention given to the argument that the stock market is in a bubble, it is important to note that not everyone shares that view.

Few fund managers have been more successful than Cathie Wood, CEO of ARK Invest and fund manager of ARK Innovation ETF ARKK,
+ 1.06%
and ARK Genomic Revolution ETF ARKG,
which, according to FactSet, have attracted more inflows than any other actively managed exchange-traded fund over the past 12 months. In a monthly webinar, Wood argued against stocks being in a bubble.

Since 2018, there have been outflows of approximately $ 300 billion of shares, excluding share buybacks by companies. But there have been inflows of $ 1 trillion in bonds, he said. “If there is a bubble somewhere, it is not in the stock market, it is in the fixed income market,” he said.

See also: Should the stock market correct in 2021? This is what some experts think

Private equity is fueling this bubble, he said. “For me it is amazing to see private capital, with [companies], will continue to leverage them so that they can enjoy the distribution of private capital, “he said. Private equity owners maintain high-multiple cash flows by not investing in the future. “That has become problematic for these companies and their high cash flow margins will disappear over time.”

The so-called “moonshots” shopping phenomenon that video game retailer GameStop GME,
and AMC Entertainment AMC,
Stocks have also enjoyed being fed by the bond bubble, he said. AMC bonds trading at 5 cents on the dollar have soared to 80 cents because the theater chain was able to issue shares. “Who will get the bag if AMC goes bankrupt? I don’t think a stock offering is going to change their circumstances, ”he said.

It also took a hit on passive investing. “This move into passive investing that we’ve seen in the last 20 years … which is now a setup for disappointing returns,” Wood said. Although he acknowledged that passive funds were cheap, he said they were “cheap for a reason,” a phrase often associated with arguments against value stocks. At least have a hedge by investing in innovation, Wood said.

In the equity market, there is a bifurcation between companies that are at the forefront of innovation and investment and companies that have not. She gave electric vehicle maker Tesla TSLA,
payment services company Square SQ,
and Roku ROKU digital player maker,
+ 7.52%
as examples of evolving platform companies where the winner takes the most. “We believe these companies will grow in their valuations, just like Amazon has been doing.”

The buzz

The economic calendar includes the release of consumer prices for January and at 2 pm ET, a speech by Federal Reserve Chairman Jerome Powell on the labor market.

Cisco Systems CSCO,
Shares fell 5% in pre-market trading as the network services company forecast current quarter results softer than markets expected.

Twitter TWTR,
+ 2.87%
The shares rose 5% as the microblogging service reported stronger-than-expected earnings and revenue, although user growth lagged behind expectations. Lyft LYFT ride-sharing service,
+ 0.43%
jumped after he cut his loss, and rival Uber Technologies UBER,
+ 0.54%
reports after Wednesday’s close.

Under Armor UA,
The shares rose 5% as the apparel maker’s results beat expectations.

Other cover earnings include General Motors GM,
which has benefited from investor interest in electric vehicles.

Former quarterback Colin Kaepernick is the latest to create a special-purpose acquisition company, seeking to raise up to $ 287.5 million in an initial public offering.

Like bitcoin BTCUSD,
value increases, economics professor Nouriel Roubini says “The Flintstones” had a more sophisticated monetary system.

The market

US stock futures ES00,
+ 0.29%

+ 0.29%
was aiming higher, after the S&P 500 SPX,
finished a quiet Tuesday at its second highest level.

The 10-year Treasury yield TMUBMUSD10Y,
it was 1.16%.

The graphic

Based on data from the National Multi-Family Housing Council, here is the proportion of late rent payments, and the graph shows that it has not decreased much during the COVID-19 pandemic. But the data set does not cover subsidized and affordable apartments or other low-level units. “More of these tenants may have a harder time paying their rent,” says Wolf Richter of the Wolf Street blog.

Random readings

“Stop complaining”: the advice given by an executive to his 1,500 home workers. He later apologized.

It turns out that Gorilla Glue is not a hair spray.

Home prices may be high, but the sharks appear to be moving toward San Francisco.

Need to Know starts early and is updated until the opening bell, but sign up here to receive it once in your email box. The e-mailed version will ship at approximately 7:30 am ET.

Do you want more for the next day? Sign up for The Barron’s Daily, a morning investor briefing, featuring exclusive commentary from Barron’s and MarketWatch


Source link