“It’s not as obvious a bubble as 20 years ago,” said Jay Ritter, a finance professor at the University of Florida who studies initial public offerings. “But we’re close to bubble territory.”
The market appears overheated by another gauge that investors often use to determine how cheap or expensive a stock is: its price relative to the profits it’s expected to make. Currently, the so-called price-to-earnings ratio for S&P 500 companies is above 22, and has been for much of the year. The last time the market was consistently above that level was in 2000.
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Small Investors Pile In
The appetite of individual investors has been an unexpected byproduct of the pandemic. For many, trading stocks started as a way to indulge their speculative itch when other avenues, such as sports gambling, were effectively shuttered.
Tim Mulvena, a 32-year-old medical software salesman in Oneonta, N.Y., was one of them. He first logged on to Robinhood, a free-trading app popular with small investors, in March and started to buy stocks as the markets were collapsing.
“I have got to dabble and just see where this takes me,” Mr. Mulvena said.
He has notched gains of roughly 60 percent on Apple, his largest position. And his investment in Penn National Gaming, a regional gambling company that bought Barstool Sports, a digital sports site Mr. Mulvena was a fan of, has more than doubled.
The Second Stimulus
Answers to Your Questions About the Stimulus Bill
Updated Dec 23, 2020
Lawmakers agreed to a plan to issue stimulus payments of $600 and distribute a federal unemployment benefit of $300 for 11 weeks. You can find more about the bill and what’s in it for you here.
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- Will I receive another stimulus payment? Individual adults with adjusted gross income on their 2019 tax returns of up to $75,000 a year would receive a $600 payment, and heads of households making up to $112,500 and a couple (or someone whose spouse died in 2020) earning up to $150,000 a year would get twice that amount. If they have dependent children, they would also get $600 for each child. People with incomes just above these levels would receive a partial payment that declines by $5 for every $100 in income.
- When might my payment arrive? Treasury Secretary Steven Mnuchin told CNBC that he expected the first payments to go out before the end of the year. But it will be a while before all eligible people receive their money.
- Does the agreement affect unemployment insurance? Lawmakers agreed to extend the amount of time that people can collect unemployment benefits and restart an extra federal benefit that is provided on top of the usual state benefit. But instead of $600 a week, it would be $300. That would last through March 14.
- I am behind on my rent or expect to be soon. Will I receive any relief? The agreement would provide $25 billion to be distributed through state and local governments to help renters who have fallen behind. To receive assistance, households would have to meet several conditions: Household income (for 2020) cannot exceed more than 80 percent of the area median income; at least one household member must be at risk of homelessness or housing instability; and individuals must qualify for unemployment benefits or have experienced financial hardship — directly or indirectly — because of the pandemic. The agreement said assistance would be prioritized for families with lower incomes and that have been unemployed for three months or more.
Even those who have stuck with less active investments — like 401(k) investors dutifully contributing to plain vanilla index funds — have gained from the market’s upward drift, enticing further inflows. Analysts at Bank of America Merrill Lynch recently cited “frothy prices, greedy positioning” as the reason for huge inflows into equity market mutual funds and exchange-traded funds in the past six weeks.
Much as they did in the 1990s, smaller investors are pouring money into trendy, tech-focused companies, many of which have seen their businesses gain traction during the pandemic. Their favorites include the cloud computing software maker Snowflake, the online surveillance company Palantir and the energy storage company QuantumScape, which is up 144 percent in December alone. Investors also like Etsy, the online marketplace, which is up 330 percent this year. Just over a week ago, 908 Devices — a maker of hand-held analytic devices — rose about 150 percent in its trading debut.