This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bubble Fears Amid Relentless Market Climb

NEW YORK ( TheStreet) -- Market strategists surveyed by TheStreet generally lean towards further gains in stock markets even as they acknowledge scenarios for a developing bubble.

The Dow Jones Industrial Average on Friday broke past 15,000, a record intra-day high as job growth in April eased concern the world's largest economy has been unable to consistently translate higher corporate profits into lower unemployment. Similarly, the S&P 500 broke 1,600 for the first time.

The S&P was adding 0.3% to 1,619.38 Monday while the Dow Jones Industrial Average was little changed at 14,983.42. The Nasdaq was rising 0.5% to 3,394.66.

Strategists attribute market gains to the unquenchable thirst for yield and central banks being eager to keep liquidity high as the main reason stocks are poised to keep moving higher. Opinions were mixed on the impact of corporate profits on the market direction.

"For me, Dow 15,000 symbolizes not only an important benchmark but also it puts in stark relief the effect of the central bank policies over the last four years," said Keith Bliss, senior vice president at Cuttone in New York. "Is the U.S. economy, and the global economy, in such good shape that the market should be trading at these levels? I'm not so sure. But as long as the Fed provides the fuel, we may stay at these levels for some time."

Nonetheless, JJ Kinahan, Chicago-based chief derivatives strategist at TD Ameritrade, viewed Friday's employment surprise as putting a "bit more pressure on many fund managers to get even more invested in the stock market than they were. I don't think it's anything crazy yet, but there's a little bit of chasing going on in terms of people wanting to have the returns of the market."

Kinahan said that along with the Federal Reserve's accommodative policies, the other factor propelling the markets is the hunt for yield. He said the chase for yield that started in the second half of 2012, propelled high dividend-paying stocks even higher, leading to the first leg of the current rally.

"As we see the 10-year yield between 1.65% and 1.85%, it means that as our population ages and is coming closer to retirement, they need to look elsewhere in order to grow their money and have the level of investments grow faster," said Kinahan.

Kinahan said that if the S&P 500 can hold 1,600 through this week, it may position itself for a bounce to 1,650, as holding that level could force new money into the market. But if it doesn't hold at that level, the strategist predicts that the index will be stuck in a trading range of 1,550 to 1,610 for a while, until the market either capitulates and heads higher or moves lower because it can't sustain those levels due to any disappointing government numbers and earnings.

Kinahan cautioned that it's too early to say that a pullback would create a good buying opportunity for stocks given that corporate earnings outlooks have been a "mixed bag" so far; CEOs of some companies have warned of having a tough time sustaining growth, while others have reassured investors that their companies will be fine as long as GDP stays around 2 ½% to 3%. Kinahan said that companies have maintained "fine" cash levels, but continue to face the challenge of increasing earnings without resorting to cost cutting - the effectiveness of which will wear off over time.

Dan Greenhaus, chief global strategist at BTIG in New York said he's expecting an inevitable stock market correction, but doesn't think that they will go meaningfully lower this year.

"In contrast to recent history, headlines such as those from Italy, Spain, Greece and Washington have been unable to send stocks meaningfully lower this year. We find that very interesting," said Greenhaus.

He predicts the general trend is higher, thanks to the increase risks appetite driven by Fed policy, and the expansion of first-quarter corporate profits.

Michael Pento, president of Pento Portfolio Strategies based in Holmdel, N.J., worries that a bubble is starting to form.

"The Fed is forcing another massive bubble into existence in the equity market," he said. "Any economic improvement has come on the back of savers and from levitating consumption and debt bubbles. Trillion dollar deficits for transfer payments keeping consumption afloat and an economy in need of deleveraging are prevented from doing so by their government and central bank."

"The market has much more room to run and will not end until interest rates rise several hundred basis points from here," he said.

" It will end with an economic collapse much worse than 2008," said Pento.

On Monday both the Dow and the S&P 500 were little changed, appearing to take a breather after Friday's big gains.

In afternoon trading, Aveo Oncology (AVEO - Get Report) was tumbling 4.37% to $2.41. Last Thursday, the FDA and its advisory panel thrashed Aveo's kidney cancer drug tivozanib -- excoriating the company for conducting a flawed and unethical clinical trial -- and sparking disappointment that CEO Tuan Ha-Ngoc hasn't been fired yet.

MBIA (MBI - Get Report) shares were surging 45% to $14.25 following a report in The Wall Street Journal that the insurer had settled a bitter multi-year legal dispute with Bank of America (BAC - Get Report) and that the bank had taken a 5% stake in MBIA. Bank of America was jumping 4.49% to $12.78.

Apple (AAPL - Get Report) was adding 2.5% to $461.25 after a couple of analysts were positive on the company, as momentum seemed to be going in the right direction.

Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.66 -0.09%
AVEO $0.92 -1.00%
BAC $14.77 1.40%
MBI $7.90 1.30%
FB $118.58 0.85%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs