Arab Press

بالشعب و للشعب
Friday, Apr 26, 2024

Beware the 'melt-up:' Analysts say stocks may soar just before they collapse

Beware the 'melt-up:' Analysts say stocks may soar just before they collapse

Storm clouds appear to be gathering over Wall Street, with many analysts saying a downturn is inevitable. But before the party winds down, some expect an explosive pre-crash rally — known as a "melt-up."

Melt-ups usually occur without any obvious economic reason for the gains. They happen when investors buy assets based on greed, or fear of missing out, instead of fundamental improvements.

First, some quick context: The past five years have been very, very good for investors. The S&P 500 has grown by nearly 90%, and the tech-heavy Nasdaq has grown over 140%. That includes two years of a pandemic that shuttered businesses and snarled global supply chains.

Now the market is grappling with the sobering reality that all bull runs end eventually.

Market watchers say that time may be near amid high inflation, an increasingly hawkish Federal Reserve and geopolitical turmoil. Recently JPMorgan CEO Jamie Dimon warned of "storm clouds on the horizon," former New York Fed president Bill Dudley said he believes a recession is "inevitable" and the yield curve is inverted — when short-term debt pays out more than long-term debt, considered a sign that a bear market could be ahead.

Yet some analysts are predicting a stock market melt-up, in a rush of irrational buying that sends assets soaring just before the bull market's collapse.

Logically, the market has to reach a top before it falls. But historically, there has been a significant acceleration toward that top in the final months before a crash: In 1928, one year ahead of the Great Depression, the Dow hit new highs before crashing by almost 90%. Before its collapse in March 2000, the Nasdaq grew nearly 200% in the 18 months prior.

Currently, sentiment data shows investors are feeling very bearish about the direction of the market, and that they have been for the past two years — during which the S&P 500 returned 75%.

Analysts, meanwhile, are more bullish on individual stocks than they have been in the past decade. Of all the stock ratings on Wall Street, more than 57% are currently "buy" ratings, the highest percentage since September 2011, according to an analysis by InvestorPlace.

"That tells me all the bad news is discounted in the market right now," said David Hunter, Contrarian Macro Advisors' chief macro strategist. "We're at an inflection point for bonds, stocks, rates and the dollar."

Investors are fearful of the Fed tightening monetary policy, Hunter says, but he thinks that inflation is reaching a peak and the tightening cycle will soon end. A quarter-percentage-point rate hike, he says, is meaningless when stock market and home values are nearly 30% above pre-pandemic levels and unemployment is historically low.

"We believe that, if the yield curve inverts, the data says the stock market will have a massive 'melt-up' over the next two years. We're talking 20% or greater gains," wrote Luke Lango, InvestorPlace senior investment analyst.

Hunter predicts that the next quarter or two will bring huge gains to investors, but the fall will also be significant. As stocks continue to soar, investors risk becoming complacent just as prices take a nosedive.

In the heat of a melt-up, investors may feel a keen sense of FOMO. But when the melt-up inevitably melts down, they may be happy they waited it out.

Newsletter

Related Articles

Arab Press
0:00
0:00
Close
China Criticizes US for Vetoing UN Ceasefire Resolution in Gaza
Saudi Arabia ranks first in UN index for e-government services in MENA
Israel Records 20% Drop In GDP, War In Gaza Is The Reason
Saudi Arabia's FDI Inflows Grow with New International Standards
Venture Capitals Power Up Across MENA Region
PM Modi Announces Opening Of New CBSE Office In Dubai
January Funding for MENA Startups Totals $86.5 Million
Saudi Arabia accelerates digital economy growth through Nvidia partnership
Israel unveils tunnels underneath Gaza City headquarters of UN agency for Palestinian refugees
Israel deploys new military AI in Gaza war
Egypt threatens to suspend key peace treaty if Israel pushes into Gaza border town, officials say
Saudi Arabia Warns Of A "Humanitarian Catastrophe" If Israel Moves On Rafah
US University To Shut Qatar Campus Due To "Heightened Mideast Instability"
Facebook and Instagram Ban Iran's Supreme Leader
Defense Technology Showcase Held in Riyadh
Saudi Arabia’s non-oil exports rise 2.5% to $6bn in November 2023: GASTAT
Rolls-Royce Executive Encourages Saudi Women to Tap into Their Inner 'Superhero' for Success in Defense Industry
Saudi Arabia launches National Academy of Vehicles and Cars
Saudi Tourism Minister Reveals Plan for 250,000 New Hotel Rooms by 2030
SAR to more than double eastern network passenger capacity with new trains deal
Saudi Arabia Enhances National Defense with New Partnerships
Saudi Aramco Maintains Arab Light Crude Pricing to Asia for March
NEOM Establishes New York Office to Support Investors
Saudi Wealth Fund Draws in Over $25 Billion Worth of Investments in Three Years, Al-Rumayyan Reveals
The Saudi Kingdom's Ultimatum to Israel: A Win-Win Peace with Saudi Arabia and the Arab World, or a Lose-Lose Continued Occupation and Endless Conflict
Biden condemns anti-Arab hate after WSJ opinion piece calls Dearborn ‘jihad capital’
Turkey Releases Seven Hostages Captured by Pro-Gaza Gunman
Arab Parliament Commends Women's Contributions to Societal Development
British and Hungarian Foreign Ministers visited Lebanese leaders to stress the importance of enacting UN Resolution 1701
Yemen's Houthis Say They Targeted British Merchant Vessel In Red Sea
Donald Trump Nominated for Nobel Peace Prize for 'Historic' Middle East Policy
US lawmakers approve F-16 jet sale to Turkey following NATO expansion support
Saudi Arabia Climbs 25 Places in World Bank's National Statistics Indicator
Tourism Growth in Saudi Arabia Fuels Advancements in the Hospitality Industry," Says Rotana Official
Houthi Rebels Request Departure of UN Staff from Yemen, Including US and UK Personnel, within a Month
Modi Inaugurates Hindu Temple on Site of Demolished Mosque in India
Over 25,000 Deaths in Gaza Amid Israeli Offensive
Escalating Clashes in Gaza as Israel Distributes Leaflets to Assist in Locating Hostages
Turkey's First Astronaut Set to Launch for International Space Station Today
Head of Palestinian Investment Fund Warns More People May Die of Hunger Than War in Gaza
Palestinian Envoy Criticizes UK for Alleged 'Double Standards' in Policies Toward Israel
Morocco to Lead UN Human Rights Council in 2024
Is artificial intelligence the solution to cyber security threats?
Egypt has been identified as the leading military force among Arab nations and ranks 15th globally
The AI Revolution in the Workforce: CEOs at Davos Predict Major Job Cuts in 2024
Iranian Nobel Laureate Narges Mohammadi Receives Additional Prison Sentence
"Gazans Urge Israeli Forces to Target Hamas in Leaked Audio"
Biden States US and UK Airstrikes on Houthis Were a 'Defensive Action
Large Pro-Palestine Rally in London as Gaza Conflict Hits Day 100
South Africa Urges World Court to Halt Israeli Actions in Gaza
×