The market looks like they are in a bubble. What should investors do now?

Many say the valuations have increased because they are at the same level as the 2000 highs. He added that higher valuations do not mean that the rally is nearing its end, investors say. History has shown that markets in the late 1990s have often been able to climb far more than previously thought, be it the dot-com boom of the late 1990s or the dizzying Japanese stock in the 1980s.

And more recently, the broader stock market has been on the decline. The S&P 500 dropped 3.3% last week, although it remains 66% above its March low. There bubbler behavior mostly lies for individual stocks, not large indices.

A major issue arguing against the market bubble is simple mathematics. With interest rates at Rock Bottom and further incentives on the table, many investors are being rewarded by risking their money, handing over high-yielding assets. Despite a global epidemic, earnings in many cases are high or have strengthened.

A combination of factors has helped drive investor optimism. According to a recent Bank of America survey of 194 money managers, the stock has a three-year high among money managers, with assets of $ 561 billion. Meanwhile, the average share of cash in the portfolio — usually a safeguard against market turmoil — is at its lowest level since May 2013.

However, investors are trying to identify what may be the bubbles between individual stocks and whether any of them will spread to the broader market. Next week, investors will have a look at new data in the area of ​​earnings from Amazon.com Inc..

AMZN -0.97%

And Google Original Alphabet Inc..

GOOG -1.47%

And the January Employment Report.

“You know, it closed all the boxes from a history book that predicted the 2000 and 2008 market crashes,” said Jeremy Grantham, co-founder of Boston Money Manager Grantham, Mayo, Van Oterlo & Co. . M. ” . Grantham has been demanding the current market since last year.

But even he believes that timing of a market top is difficult.

“We know that each bubble is a little different and with the help of new trading platforms and the Internet, it can set more records,” he said.

Mr. Grantham is not alone in his concerns. According to a recent survey by Deutsche Bank, about 90% of the approximately 627 market professionals are in some financial market bubble. Meanwhile, Google’s search for the term “stock market bubble” reached an all-time high in January.

First American Trust chief investment officer Jerry Brackman says his company, which is concerned about stretched valuations in the US, is gradually transferring more money to the stock.

Recently, “the market has not been related to the macro picture,” he said.

Although some stocks and asset moves are shaking, analysts and investors say they are not surprised by freewheeling, speculative activity in the financial markets.

A super-adjustable Federal Reserve during the past 11 months, low interest rates and, more recently, optimism over the coronavirus vaccine and the economy have greatly reduced investor purchases. Many Americans built their savings during the epidemic — and would benefit even more, if anyone followed Congress through another stimulus package. And the prospect of lower returns in most other assets has prompted investors to buy stocks more aggressively.

Add to that, more individual investors are trading than ever before. Those investors threw their weight around shocking Wall Street veterans around the past year with irrational stock picks, including Hertz Global Holdings Inc.,

HTZGQ 7.36%

Which spread to nearly 900% from its low to its high in the wake of filing for bankruptcy protection.

This year’s encounter has been even more amazing. On Wednesday, 24.5 billion shares and 57.1 million options contracts changed hands, a record run by individual investors, according to Rich Repetto, a managing director at Piper Sandler & Co. GameStop, more than doubled that day, which in a nutshell. The videogame retailer was giving shares of the stock gains over 1,700% since the beginning of the year.

“This is just one example of dozens upon dozens becoming one,” Grantham said. Other retail darlings include AMC, which jumped more than 300% on Wednesday, and BlackBerry Ltd.

, Whose stock on the same day had the largest gain in more than 17 years.

Companies are rushing to take action.

According to Renaissance Capital data, companies have raised $ 13.4 billion through 24 IPOs this year, a 300% increase from the same period last year. According to SPACinsider.com, blanc-check companies continued to flood the market by collecting approximately $ 25 billion with a total deposit of approximately $ 25 billion. And 111 of the additional shares have been offered by US-listed companies, double the number from the same period a year ago, degloss data show.

Typically, this kind of frenzied activity prompts big money managers to pull back from the stock. But many argue that Gametop, AMC and other high-powered stocks represent their own bubble – and do not pose a threat to the entire financial ecosystem. Analyst at Goldman Sachs Group Inc..

GS -1.40%

The run-up to unprofitable stocks, which say they account for about 5% of the market overall, has very little risk of contagion.

“These stocks are not a big part of the stock market,” said Samantha Macklemore, a portfolio manager at Miller Value Partners, a $ 3.5 billion money-manager. “There are a lot of market segments that we value attractively.”

At first glance, the valuation of investors, measuring price-to-earnings ratios, is finding the market expensive.

The S&P 500 currently trades at 22 times estimated earnings over the next 12 months, not more than 25 times the index of 22 times in 2000, just before the dotcom crash, according to FactSet.

But this is only part of the picture. Many investors and analysts said that this level once looked low about interest rates and earnings, which are expected to rise, is embroiled in fact.

A simple explanation why investors have not withdrawn more?

“We have seen this in the past – if you think you have a bubble and sell out soon, it can be a very expensive business,” said Mr. Brackman of First American Trust.

write to Michael on Michael Wursthorn. [email protected] and Akane Otani at akane.otani.ws.com