US stockmarket bubble has started to deflate

Sanity is making a tentative return to stockmarkets, with frothier corners of the market finally starting to deflate. 

“Sanity” is making a “tentative return” to the market, says Robin Wigglesworth in the Financial Times. Stocks have so far shrugged off hints that we are heading for tighter monetary policy, but frothier corners of the market are finally starting to deflate. 

Many of this year’s “most heinously silly trades” have come undone in recent weeks. Take the flagship fund at Ark Invest, run by fund manager and noted bitcoin bull Cathie Wood. Its big bets on artificial intelligence and genomics helped it gain almost 150% in 2020, but it is down by more than 21% this year. A Goldman Sachs index of unprofitable US tech stocks is down “more than a fifth” over the past month. 

Investors buy unprofitable tech stocks because they hope to make money in the future, but higher interest rates prompt some to sell and put their cash into assets that make returns today instead. There have been few things sillier in 2021 than the rise of the “meme stock”. Ordinary “retail investors” have been co-ordinating on the internet forum Reddit to drive up the price of certain stocks. 

There is little rhyme or reason to which stocks become fashionable, beyond a desire to bet against Wall Street hedge funds and vague childhood nostalgia for bricks and mortar video game retailers (GameStop) or struggling cinema chains (AMC Entertainment). GameStop shares surged by as much as 2,700% earlier this year, but on Monday they tumbled to their lowest close since March, says Janet Cho in Barron’s. 

Cryptocurrencies, another big winner of the 2021 market madness, are also coming under pressure. Bitcoin has been trading as low as $46,462 this week, down more than 30% since last month’s all-time high. Ether, another cryptocurrency, has fallen 20% over the same period.

Recommended

Cryptocurrency roundup: Putin backs crypto-mining, and spoof McDonald’s coin takes off
Bitcoin & crypto

Cryptocurrency roundup: Putin backs crypto-mining, and spoof McDonald’s coin takes off

Saloni Sardana looks at the cryptocurrency stories that caught our eye this week.
28 Jan 2022
Are recession fears justified? Maybe it’s time to look on the bright side
Economy

Are recession fears justified? Maybe it’s time to look on the bright side

There's a lot to feel nervous about right now, and many people are worrying about an impending recession. But it's by no means certain, says John Step…
28 Jan 2022
Making money is about to get much harder
Investment strategy

Making money is about to get much harder

Soaring inflation, geopolitical risk, bubbly stockmarkets - getting a return on your investment is going to get much more difficult – but not impossib…
28 Jan 2022
How to invest in the chipmakers fixing the semiconductor shortage
Share tips

How to invest in the chipmakers fixing the semiconductor shortage

Last year’s chip crunch brought home how dependent the world is on these tiny pieces of silicon. Chipmakers are rushing to build new factories. Will t…
28 Jan 2022

Most Popular

Amazon halts plans to ban UK Visa credit card payments
Personal finance

Amazon halts plans to ban UK Visa credit card payments

Amazon has said that it is to shelve its proposed ban on UK customers making payments with Visa credit cards.
17 Jan 2022
Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Temple Bar’s Ian Lance and Nick Purves: the essence of value investing
Investment strategy

Temple Bar’s Ian Lance and Nick Purves: the essence of value investing

Ian Lance and Nick Purves of the Temple Bar investment trust explain the essence of “value investing” – buying something for less than its intrinsic v…
14 Jan 2022