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The JPMorgan analyst described the stock frenzy as a melt-up situation that does not continue forever.
A report by analysts at JPMorgan states that retail investors from the US largely contributed to the summer stock market rally. Notably, purchases of stocks, more so meme stocks, and exchange-traded funds (ETF) scaled to the highest levels since 2017.
According to the report that was authored by Nikolaos Panigirtzoglou a cross-asset research analyst at JPMorgan, there is more pressure to keep the stock market rising further. “As long as this retail flow continues, the equity market will keep going up,” Panigirtzoglou said.
However, he warned that should the inflows cut short, the likelihood of market reversals is high.
“If that flow stops and we start seeing material outflows – from equity ETFs in particular – then we should start getting worried about the equity market because it would mean that the attitude of retail investors towards equity markets is changing,” he added.
According to a post by the Financial Times, the global equity fund inflows that are used by analysts to understand retail investors have pushed past $689 billion so far this year. Reportedly, this is the highest recorded figure since 2017.
However, the JPMorgan analyst described the stock frenzy as a melt-up situation that does not continue forever. “If anything, that retail flow has been accelerating recently. It looks more like a melt-up. The problem with melt-ups is that they don’t continue forever,” Panigirtzoglou explained.
JPMorgan and the Market Outlook
Notably, the S&P 500 index has gained approximately 33%% and 22% in the past year and year to date respectively according to MarketWatch. Dow on the other hand has gained approximately 26%, and 16% in the past year and year to date respectively. The Nasdaq 100 index has gained approximately 35.19%, and 21% in the past year and year to date respectively.
The report by JPMorgan’s analyst reiterated what has been unfolding in the past year. Notably, at the beginning of this year, the stock market was marred with huge speculation from Reddit community investors and also others from Twitter. Among the most affected stocks were those that had been long ignored by Wall Street including GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Inc (NYSE: AMC).
The huge retail inflow can largely be attributed to the ongoing coronavirus pandemic. As people retreated to their homes for weeks to avoid coronavirus infection. And most lost their jobs due to market closure. The stock market became an alternative investment for most to survive the crisis.
As more and more people bought stocks, the prices kept rising during the summer as explained by JPMorgan. Over time, most retail investors have opted for a much faster investment vehicle, particularly Bitcoin and other crypto assets.
A notable influx of retail investors into the crypto industry has preceded institutional investors seeking crypto exposure in their portfolios.