Market edges towards euphoria, despite the toll of the pandemic

“It’s not as obvious a bubble as it was 20 years ago,” said Jay Ritter, a finance professor at the University of Florida who studies IPOs. “But we’re close to the bubble area.”

The market appears to be overheating by another measure that investors often use to determine how cheap or expensive a stock is: its price relative to expected earnings. Currently, the so-called value for money for S&P 500 companies is over 22 and has been for much of the year. The last time the market was consistently above this level was in 2000.

Individual investor appetites were an unexpected by-product of the pandemic. For many, trading stocks started indulging their speculative itch when other avenues, such as gambling, were effectively closed.

Tim Mulvena, a 32-year-old medical software seller in Oneonta, NY, was one of them. He first logged on to Robinhood, a free trading app popular with retail investors, in March and started buying stocks when the markets crashed.

“I have to try and see where this takes me,” said Mr. Mulvena.

At Apple, his largest position, he achieved growth of around 60 percent. And his investment in Penn National Gaming, a regional gaming company that bought Barstool Sports, a digital sports website that Mr. Mulvena was a fan of, has more than doubled.

Even those who have stuck with less active investments – like 401 (k) investors who dutifully contribute to simple vanilla index funds – have benefited from the market’s bullish movement and stimulated further inflows. Bank of America analysts Merrill Lynch recently cited “foamy prices, greedy positioning” as the reason for the huge inflows into stock market mutual funds and exchange-traded funds over the past six weeks.

Much like they did in the 1990s, smaller investors are investing money in trendy, technology-driven companies, many of which have seen their businesses gain momentum during the pandemic. Her favorites include cloud computing software maker Snowflake, online surveillance company Palantir, and energy storage company QuantumScape, which grew 144 percent in December alone. Investors also like Etsy, the online marketplace, which is up 330 percent this year. Just over a week ago, 908 Devices – a manufacturer of portable analytics equipment – was up around 150 percent on its commercial debut.

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