The Dow Is Climbing Because the ‘Everything Bubble’ Is Back

• The Dow is well on its way to another positive session.
• Stocks aren’t the only asset class rallying. Gold just hit a new record, while silver has more than doubled since March.
• Is this the “everything bubble” contrarian analysts have been warning us about?

A strong rally from Apple stock led the Dow Jones Industrial Average higher on Monday.

Dow Rises on Monday

Investors brushed off escalating U.S.-China tensions and reveled in confirmation the next stimulus package will likely include another $1,200 check for most Americans.

As of 10:00 am ET, the Dow had gained 107.26 points or 0.41% to 26,557.15.

Apple, the stock with the largest weighting in the Dow, rose 2.3% to anchor the index’s gains.

The S&P 500 rose 0.57% to 3,233.8, while the Nasdaq jumped 1.36% to recover to 10,503.88.

The ‘Everything Bubble’ Bears Love to Warn You About Is Back

The last round of stimulus checks helped fuel a retail trading boom. Investors appear confident this next tranche of fiscal aid will quickly find its way into markets too.

Contrarians worry it’s just incentivizing risky behavior – and blowing another puff of hot air into an “everything bubble” that they’ve been warning about since before the pandemic.

Here’s how Desmond Lachman, a resident fellow at the American Enterprise Institute, put it in late March:

One indication of the world equity price bubble was the very high valuation to which the U.S. equity market reached before its large coronavirus-induced correction earlier this year. Measured by the cyclically adjusted price-earnings ratio, before the pandemic’s onset U.S. equity valuations reached lofty levels experienced only three times in the past hundred years. Meanwhile, numerous housing markets around the world, including those in several large U.S. cities, had price-to-income ratios that exceeded those reached at the 2006 peak of the earlier housing market bubble.

When Lachman warned about the “everything bubble” on March 19, stocks appeared to be in free-fall. In reality, the Dow Jones Industrial Average was just two days away from the bottom.

Four months later, what Lachman called a “bubble” has returned with a vengeance.

Among the Dow, S&P 500, and Nasdaq, only the Dow is still negative for the year. Last week’s tech sector pullback notwithstanding, the Nasdaq hasn’t just recovered – it’s shot up to new all-time highs.

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Aside from a brief hiccup, the housing market ignored the crisis entirely. Sales bounced back aggressively as soon as lockdown restrictions eased. Demand is ranging at pre-financial crisis levels. And one economist recently told CCN.com that U.S. home prices could climb as much as 10% over the next two years.

With risk assets surging, you might expect to observe a mass exodus from “haven” investments. This hasn’t been the case.

Gold, Silver, & Bitcoin All Shoot Higher

Gold prices hit record highs this morning. The yellow metal traded as high as $1,941, a yearly gain of more than 33%. Analysts say $2,000 is next.

Silver has rallied just as hard. After sinking below $12 in March, silver prices have more than doubled to just under $25 – a level last seen in 2013.

Even bitcoin cracked $10,000 overnight.

Dow Bulls Are Taking Their Cues from Policymakers

“Don’t fight the Fed” has long been Wall Street’s mantra.

Thomas Martin, senior portfolio manager at Globalt Investments, says that in today’s crisis-stricken environment, that’s only part of the picture:

You don’t want to fight the Fed, the world’s central banks or the world’s governments.

Investors appear to have gotten the memo.

Last modified: July 27, 2020 2:03 PM UTC

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