Nasdaq Bubble Explodes Higher, Takes Another Meth Hit Of Robinhood Traders, Tech Monopolies, Zero Rates And Loose Fed Policies
Covid-19 and Robinhood opened the floodgates for 13 million amateur stock traders when stocks went to historic lows. Stay-at-home orders, zero commissions and government stimulus helped generate a surge in activity and an increase in first-time traders.
After being sidelined for years by high prices, first-time traders — many in their 20s and 30s — found the stock market accessible on Robinhood. Sports events were canceled and stock trading replaced sports betting, CNBC reported.
Stocks on Monday rallied to a six-week high amid a rally in some of the world’s largest tech companies after plunging into a correction in September, Bloomberg reported.
“People are worried about missing out, so they are going right to the tech leaders,” said Keith Gangl, a portfolio manager of Gradient Investments.
The Nasdaq Composite advanced 2.8 percent, the S&P 500 gained 1.9 percent and the Dow Jones Industrial Average rose 309 points — 1.1 percent. Amazon soared 4.8 percent ahead of its Prime Day. Facebook also gained 4.8 pecent. Apple went up by 6.2 percent ahead of unleashing 5G as one of its most significant additions to this year’s iPhones. Alphabet rose by 3.9 percent and Microsoft gained 3.1 percent. Twitter Inc. rallied on an upgrade at Deutsche Bank, boosting its price estimates for other companies that derive revenue from digital advertising such as Facebook and Alphabet.
The market is “exhibiting a very strong pro-growth/momentum bias,” said Adam Crisafulli, founder of Vital Knowledge, in a note, CNBC reported. “The pivot away from cyclicals (which had been leading for the last two weeks) could reflect reduced near-term odds for fiscal stimulus and spiking covid cases, but the core macro narrative in the U.S. is still intensely focused on the possibility for a ‘Blue Wave.’”
Monday’s rally came as chances seemed to fade over the weekend for another round of stimulus before the election. Senate Republicans and House Speaker Nancy Pelosi (D-Calif) pushed back on a $1.8 trillion offer from the White House.
However, “there’s enough stimulus in the pipeline for now to kind of get us through year-end without causing a risk of a double-dip recession,” said Mike Wilson, chief U.S. equity strategist at Morgan Stanley, on CNBC’s “Squawk on the Street”.
“Ultimately, no matter who wins the election, by the first quarter we’ll have an additional stimulus that’s probably still required to make sure that the recovery continues,” Wilson said.
Fed policies are supporting rigged market concentration and monopoly power, according to a Princeton research paper.
Big tech firms such as Amazon, Apple, Facebook, Google, Microsoft, Netflix, and Tesla are more dominant than ever.
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“Market leaders aggressively invest to escape competition when interest rates are low. Smaller companies become discouraged by the fierce competition that would be necessary to gain market leadership,” according to a paper entitled “Low Interest Rates, Market Power, and Productivity Growth.”
The paper, issued in January 2019 and revised in August 2020, was written by Ernest Liu, a postdoctoral student at Princeton University and professors Atif Mian at Princeton University and Amir Sufi of the University of Chicago.
In a world where interest rates start low and drop even further, larger firms benefit at a higher relative rate, the authors wrote.
The structure of modern capitalism favors companies that operate at once-unimaginable scale, in the absence of a government will to prevent monopolies from forming, David Dayen wrote for the Atlantic.