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There are signs of stock market 'micro-bubbles'

Brian Sozzi
Editor-at-Large

The baby bubbles are forming out there in stock market land, and investors don’t have to look too far to find them.

The upside? The eventual bursting of said bubbles is unlikely to rock global financial markets, Wall Street pros Yahoo Finance have talked with say. Rather, the blowups could be relegated to the specific asset in question.

“It doesn’t look like anything you apply the bubble name to looks systemic in nature such that the bursting of it is going to take down the entire global financial system like housing did in 2007,” contended Charles Schwab chief investment strategist Liz Ann Sonders on Yahoo Finance’s The First Trade.

To be sure, bubble spotting is back in focus on Wall Street as continued low interest rates (and the specter of rate cuts soon) sends investors in search of yield at almost any price. Take for instance, high-flying tech stocks such as Facebook (FB) and Amazon (AMZN) — despite fresh fears of new regulatory battles, the stock prices of each are up more than 10% in the past three months.

Keep in mind, neither big tech stock was cheap by any measure before that run.

Meanwhile, high-beta chip stock Advanced Micro Devices (AMD) — always a go-to momentum trade — has notched a 30% gain in the past three months. Bitcoin (BTC-USD) prices have almost doubled off the late-December 2018 lows.

Even otherwise defensive names such as Coca-Cola (KO) and PepsiCo (PEP) are up about 11% each in three months times. Similar to many tech names, neither of these stocks are cheap (and they certainly aren’t now).

And how can you overlook the insanely positive market reactions to new IPOs Beyond Meat (BYND), Crowdstrike (CRWD), Chewy (CHWY) and Fiverr (FVRR)? In short, you can’t — money has piled into these upstart companies with no regard to the fact none of them are making money.

The facade of the New York Stock Exchange is decorated for the Chewy IPO, Friday, June 14, 2019. Chewy, the online seller of pet food and squeaky toys, went public Friday and its shares soared 71%. (AP Photo/Richard Drew)

“You might be able to call it a bit of a micro-bubble — that is a term I have been using over the past year to describe some of these micro-bubbles. You had it in short volatility [trades] in early 2018. You had it in the FANG [Facebook, Amazon, Netflix, Google] stocks. You had it in the cryptocurrencies,” Sonders said.

The positive is that when it comes to the overall markets, valuations don’t appear too stretched. That is giving Wall Street pros the ammunition to suggest the market could still push to new records this year even as it appears bubbles in certain sectors may explode.

“We don’t see anything akin to global catastrophe. Valuations aren’s extraordinary,” said New Wealth Management CEO Daryl Deke.

“I think there is some frothiness in the markets,” Deke acknowledged.

Somewhat — though not totally — reassuring.

Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi

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