New stimulus checks might just help provide one last hurrah for the speculative frenzy we've seen in certain parts of tech.
One day after the storming of the Capitol and a rotation out of tech helped drive a major selloff in high-multiple tech stocks, Robinhood favorites roared back with a vengeance. Just about everything that had been bid up to eye-popping multiples -- EV/clean energy firms, high-growth SaaS firms, stay-at-home plays, etc. -- rocketed higher.
There was also one amusing twist: 3D printing stocks blasted off in a way that rekindled memories of their meteoric 2012/2013 run-ups after 3D Systems (DDD) (up a stunning 104% on Thursday) pre-announced strong Q4 sales.
Aside from the usual speculative euphoria of recent months, hopes that the arrival of a Democrat-controlled Senate will lead a torrent of stimulus money to be unleashed in the coming weeks appears to have played a role. It looks as if investors were betting not just that $2,000 stimulus checks will arrive, but that a lot of those funds will be deposited into brokerage accounts. And as a result, there was a rush to get ahead of expected buying in retail equity favorites, not to mention Bitcoin and some other cryptos.
As critical as I've been (and remain) about a lot of the speculative excesses we've seen lately, I have to admit there's a certain method to such trading madness. If the investing mantra of 2020 was "Don't fight the Fed," the mantra of early 2021 at least might be "Don't fight the checks" (or the Fed, for that matter) A lot of fresh funds could soon be pouring into retail brokerage accounts, and in the absence of bad macro news that drives broader selling pressure, odds are good that a lot of those funds will be invested in the likes of Tesla (TSLA) , Quantumscape (QS) , Snowflake (SNOW) and Palantir (PLTR) , valuations be damned.
Meanwhile, with COVID for now still weighing heavily on things such as travel and hospitality spend, it's also likely that a decent chunk of the new stimulus money that's spent rather than invested will be used on tech and consumer electronics products. That would naturally provide an additional boost to sales of smartphones, notebooks, gaming hardware and much else, and this in turn would yield fresh orders for chip suppliers that are already scrambling to keep up with demand. Such a scenario could help drive additional buying in the shares of chip industry favorites such as Nvidia (NVDA) , AMD (AMD) and TSMC (TSM) .
Just maybe the shares of the tech giants miss out on all this fun, due to worries about the greater antitrust heat that they might feel with the Democrats controlling both houses of Congress and the White House. That said, with the Democrats controlling the Senate by the slimmest of margins, and with many of the proposed antitrust actions that could seriously hurt the tech giants being matters that would have to be settled by the courts, markets could take a wait-and-see attitude regarding just how much legislative and regulatory pressure tech giants have to contend with in the near-term.
With all this said, one general rule about bubbles (from the Dutch tulip mania on down) is that they're typically near their final stages when a large portion of buyers aren't purchasing an asset at inflated prices because they genuinely believe the asset is worth that much, but simply because they're seeing prices skyrocket and figure they'll be able to sell the asset to someone willing to pay more (i.e., the greater fool theory). With investors now apparently looking to front-run expected stimulus-driven purchases, and with day-trading and options-buying having gone through the roof, we seem to be reaching that point.
Also: Considering that inflation would almost certainly be higher right now if not for the fact that the personal savings rate is elevated due to COVID, it's easy to see another large round of stimulus contributing to a meaningful uptick in inflation later in 2021, as COVID vaccines help drive a surge in travel/hospitality spend and a corresponding drop in the savings rate. And that in turn could force Jerome Powell & Co. to start tightening.
For these reasons, it's probably best to tread carefully with high-multiple names right now, whether on the long or short side. This crazy market could get crazier still with the help of additional stimulus, but a lot of current trading activity does feel very late-stage in nature.
