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Stocks at Risk, Like Before 1998 Slump: Miller Tabak's Maley

Miller Tabak's chief market strategist sees threats to stocks, including the rise of SPACs, huge options trading and record margin debt.

The stock market is at risk now, just as it was before it slumped in summer and fall 1998, says Matt Maley, chief market strategist at money manager Miller Tabak.

“Today, we’re seeing the same kind of froth in the marketplace that we saw in 1998,” he wrote in a commentary.

The S&P 500 is trading at 22.5 times forward earnings, he notes. The danger signs:

· “The rise of special-purpose-acquisition companies, or SPACs;

· “An explosion in options trading for individual investors;

· “Record levels of margin debt;

· “A parabolic rise in cryptocurrencies;

· “An even bigger parabolic rise in non-fungible investments, and

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· “Ridiculous moves in meme stocks, etc.”

“[We] believe the stock market has become vulnerable once again to the kind of correction that scared a lot of investors 23 years ago,” Maley said.

“This is especially true given that the [Federal Reserve] has clearly signaled their intention to become less accommodative going forward, and the European Central Bank has hinted toward doing the same.”

To be sure, stocks may not be in imminent danger, he said

“Just because something always pricks the bubble eventually, it does not mean that it will definitely take place in the coming days or weeks,” Maley said.

“However, it is our opinion that the risk side of the risk/reward equation has grown substantially over the past several months.

“Therefore, we believe investors should raise a little cash at these levels. 

"If/when this ‘everything rally’ ends, most everything will decline. Therefore … cash will be one of the few hedges that investors will find successful if/when the market corrects.”