Aug. 10, 2017, 5:13 PM
Stock indices forged ahead to make new highs before escalating political tensions between the US and North Korea spurred some mid-week selling. Business Insider CEO Henry Blodget discusses the many yellow flags that have been raised about the sustainability of the equity rally. Jeffrey Gundlach, the CEO of DoubleLine Capital, is so confident that fear will return to the market that he made big bets on a spike in the CBOE Volatility Index — or VIX — calling the trade “easy money.” Meanwhile, stock valuations are the most extended since the tech bubble, and that’s flashing warning signs about how long the rally can continue. And unlike the dotcom era, all sectors are stretched right now, not just tech.
Bitcoin also hit new highs this week, and has been called the “perfect asset for a speculative bubble.” It could go to $1 million, or $1 — no one really knows at this point. The cryptocurrency recently “forked,” which resulted in every coin being split into one coin, and one unit of something called bitcoin cash. Now the question becomes whether bitcoin cash will be as popular or widely used as regular bitcoin. If it fails, that won’t have any direct effect on bitcoin, and if it becomes useful, it’ll be another purely speculative investment vehicle.
There’s a debate raging over artificial intelligence (AI), and whether the machines will take over everyone’s jobs. History suggests that the economy is good at adjusting to technological change. Wall Street Journal columnist Greg Ip recently wrote a piece, drawing parallels between the rise of AI and the proliferation of Microsoft Excel. He noted that while spreadsheets did eliminate some jobs, it also created whole new employment opportunities.
Julia Coronado, the founder and president of economic research firm MacroPolicy Perspectives, spoke to Business Insider executive editor Sara Silverstein about recent jobs data. She discusses the size of the so-called shadow labor force, which she views as an open question. Coronado says that low wage growth suggests there’s a lot of potential, and notes that millennial women have been re-entering the workforce. She then goes on to discuss the tightening efforts of the Fed, which she sees fully priced in by the Treasury market — but she questions whether investors in other areas are as prepared. Coronado also discusses her view on inflation, and breaks down the differing stories being told in the stock and bond markets, and thinks the more macro-focused fixed-income market is reading it better.
Denise Chisholm, a sector strategist for Fidelity Investments who uses historical probability analysis, spoke to Henry Blodget about whether the stock market is in a bubble. She notes the outperformance of a cap-weighted S&P 500 and one that’s weighted equally, and dispels the idea that it’s a negative sign. Chisholm also sees the market-beating returns seen in tech as aligned with history, and doesn’t view it as a tail event. She then goes on to break down the three main drivers of tech performance, and outlines why she sees growth stock in the sector as cheap. Finally, Chisholm recommends seeking out defensive stocks, which will outperform in a down market and still ride the wave higher when the market is climbing.
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