Jon Markman: Bulls looked like they were about to achieve some big milestones this week, including new all-time highs for the large-cap indices and a definitive breakout of overhead resistance for the tech-heavy Nasdaq.
But insistent selling pressure in the final days of the week blunted the progress.
The cause? We could name a few.
One was a warning from hedge fund manager David Einhorn of Greenlight Capital in a client note that we’re in the midst of “our second tech bubble in 15 years,” and all that is uncertain is “how much further the bubble can expand, and what might pop it.”
Einhorn, who has a decent, though not spotless, track record on such orations, went on to list a few of the indications that things have gone too far, including:
- The rejection of conventional valuation methods.
- Forced short covering by skeptics.
- Big first-day IPO pops for companies that “have done little more than use the right buzzwords” to attract the right venture capital.
Given Greenlight’s small loss during the first quarter, much of Einhorn’s negativity could be dismissed as simply sour grapes.
But given what we know about fund positioning (big overweights in tech) and recent sentiment, there is certainly room for a deflation of expectations.
That is, there is justification for a substantial correction, no doubt. I could list five more reasons.
Yet for now, the fundamentals suggest the bull market will merely enter a more mature, less vital phase where it grinds out gains in a less flashy, less enthusiastic manner into the start of summer.
Profit margins will come under pressure as the job market keeps tightening.
Higher interest rates stemming from new Federal Reserve policy will limit the ability of corporations to use cheap credit to lever up their balance sheets and use borrowed funds to fuel share repurchases — one of the main supports of stock prices lately.