Now it’s a bubble| The Big Conversation | Refinitiv | Summary and Q&A

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June 23, 2020
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Real Vision
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Now it’s a bubble| The Big Conversation | Refinitiv

TL;DR

The U.S. equity market is showing signs of a bubble, with the reemergence of retail investors and increased demand for ESG data.

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Key Insights

  • 👁️‍🗨️ The U.S. equity market has shown signs of a bubble, with increased retail investor participation and emotional attachment.
  • 👁️‍🗨️ Previous bubbles, such as the dot com boom and the Japanese asset bubble, had extended periods of deflation.
  • 😑 The pre-COVID equity market was driven by corporate share buybacks and pension fund flows.
  • 💗 Demand for ESG data has surged, indicating a growing interest in sustainable finance and socially responsible investing.
  • 🍳 The market rebound after the pandemic has broken records and extended the valuation disconnect.
  • 👁️‍🗨️ The Fed's actions and retail investor participation have contributed to the creation of an equity bubble.
  • 👁️‍🗨️ The sustainability of the equity market's rebound and the potential consequences of a bubble deflation are uncertain.

Transcript

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Questions & Answers

Q: How did the equity market perform before and after the COVID-19 pandemic?

Before the pandemic, the market lacked signs of a bubble, driven by corporate share buybacks and pension fund flows. However, the market rebounded strongly after the pandemic, breaking records and attracting retail investors.

Q: What factors differentiate a bubble market from a non-bubble market?

A true bubble market is characterized by extreme emotional involvement from investors, peak mania, and a prolonged period of deflation after a burst. Emotional attachment and public interaction drive the bubble.

Q: How has retail investor participation affected the equity market?

Retail investors have reentered the market, driving increased trading volumes and stock choices. They have displayed a strong belief in dip buying and a willingness to follow the Fed's actions.

Q: Why has demand for ESG data increased?

The demand for ESG data has increased due to its association with higher-performing assets during the pandemic. Investors are also focusing on investing in sustainable finance and socially responsible companies.

Summary & Key Takeaways

  • In January, the equity market lacked the signs of a bubble, with little emotional involvement from investors. However, with the rebound from the COVID-19 pandemic, the market has experienced a surge in retail investor participation and emotional attachment.

  • Previous bubbles, such as the dot com boom and the Japanese asset bubble, were characterized by extreme public interaction and emotional attachment, leading to extended periods of deflation.

  • The drivers of the pre-COVID equity market were corporate share buybacks and 401K pension flows. However, the current market rebound has broken records and extended the valuation disconnect.

  • Demand for ESG data has increased significantly, indicating a growing interest in sustainable finance and socially responsible investing.

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