Bull market, bubbles, swifftonomics

“It was the best, the worst, the age of wisdom, the age of foolishness,” Charles Dickens famously wrote. It properly captures the dislocation between political events and market behavior as we enter next week.

The US government closures are worried about its negative impact worldwide, but it does not seem to attenuate risk-on sentiment across major stock markets. The political impasse in Washington, D.C. appears to be expected to continue until next week. There are concerns that the Trump administration will use fundraising freezes to permanently cut roles and cancel certain projects.

There has been a lot of research into what an extension of a stock means for a stock, but the major US and European indexes have hit record highs. This shows that fund flow data from Bank of America moved $26 billion to global equities the week that ended October 1st, indicating a record $9.3 billion in the technology sector.

But in this optimism another story is growing. The growing number of market participants warns that bubbles are being formed in some of the market, which some say could lead to a larger market correction.

Saxo’s warning is “unpredictable, preparation.” In a recent memo, the bank says, “Moods are hardly conflicted. The stock index is approaching a record high…but consumer sentiment remains near historic lows,” encouraging investors to diversify to protect against instability.

There is a red flag, especially in the credit market. Bank of America’s Barnaby Martin shows that “Squawk Box Europe” and their recent survey show that credit investors have one of the “largest overweight in the 20-year history” of the survey, warning that concerns are growing about the market bubble.

Last week, the first brand of the US auto parts manufacturer filed for bankruptcy after revealing a $12 billion debt pile using off-balance sheet finance. Famous shortseller Jim Chanos told the Financial Times he “questioning that he’ll see more of these things.”

The bubble, which appears to be in danger of bursting, was formed around multi-award winning pop star Taylor Swift. Her latest album, The Life of a Showgirl, was released worldwide on Friday after months of predictions for fans. It followed her record-breaking ERAS tour, with ticket sales alone exceeding $2 billion.