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01.02.2021 01:45 PM
In anticipation of a disaster: what threatens stock market bubble and when will it burst

With the current acceleration of low-liquid shares of some US companies by a thousand percent, a reasonable question arises - who is earning huge profits from this, and who just took advantage of the general hysteria and fanned the dissatisfaction of private investors?

The situation when speculative traders from the platform Reddit blew up the shares of the American company GameStop, affected all market participants. First of all, the absurdity of what happened is striking - non-professional traders united and dispersed the securities of a company unknown to the world by a thousand percent a month ago. Leading American publications have already dubbed the current situation the "shaking of the foundations" of Wall Street - after all, until recently, amateur traders did not even think about competing with global hedge funds and determining market movements.

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After the stock price rose, funds suffered losses, and after the world saw Elon Musk's famous tweet, the value of GameStop securities increased by 200% in 24 hours. The struggle of traders with hedge funds gradually pulled into its circulation and several more companies - speculators from Reddit began to disperse the papers of AMC Entertainment, Bed Bath & Beyond, BlackBerry, Express Inc., and others.

At the end of last week, brokers Interactive Brokers Group and Robinhood curtailed deals in the shares of GameStop and some of the aforementioned companies, whose securities have increased in value uncontrollably. In response, investors have filed a class action lawsuit against Robinhood, alleging that the company blocked private investors from buying GameStop shares without a legitimate reason.

Today experts consider the current situation in the financial markets to be one of the ten largest risks in the medium term. Analysts call the risk of bursting asset bubbles the main threat in the next three to five years.

Investment banks are also actively discussing the bubble and its frightening consequences. Experts believe that the shares can still grow by 50-100%, while they do not advise investors to enter this dangerous game. In addition, analysts say that the new US president Joe Biden, and the incentives of his administration will inflate the already impressive bubble even more, and the inevitable collapse of the markets will follow. Some experts say that investors have only a couple of weeks to make the last bets, then there will be an impressive growth in stocks, and then an imminent collapse. Based on the long history of US exchanges, analysts say that after the level of super enthusiasm, the bubble burst every time for several months.

However, some experts are more optimistic about what is happening. So, many analysts do not deny the existence of a bubble, but only in individual stocks. Following their logic, if it bursts, it will not harm the entire market. This group of experts is rather seriously concerned about the so-called SPAC firms, which are being brought to the market for their further merger with some real company, as a result of which the latter goes public. This becomes a kind of way to conduct an IPO with much fewer obstacles and difficulties. According to statistics, 56 SPACs have been listed on exchanges since the beginning of this year, raising $ 16 billion. During the previous year, shares on the exchange sold 226 SPACs, raising $ 76 billion.

By the way, the securities of many companies (and not only digital ones) are currently trading near their historical highs. For example, Johnson & Johnson shares recently broke their historic record. This also includes the next highs of the S&P 500 and Nasdaq indices, updated on January 25, which was facilitated by a rally in technology stocks.

Irina Maksimova,
Pakar analisis InstaForex
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