The Fed is 'blowing a bubble' in stocks that usually 'ends in tears for investors' as market looks up to 10% overvalued, Wall Street firm says

Reuters / Andrew Kelly

• The lasting economic damage caused by the COVID-19 pandemic isn't being reflected in the stock market, according to a note published by Stifel.
• Liquidity and low real yields have been the primary drivers of the S&P 500's more than 50% rally from the March 23 bottom, and the Fed is "once again blowing a bubble" that "usually ends in tears for investors," Stifel said.
• The research firm said it believes the S&P 500 is currently 5% to 10% overvalued heading into the fall due to prolonged risks to jobs and growth, according to the note.
• But if the equity risk premium continues to fall to 3% by the end of 2021, driven by falling interest rates, expect the S&P 500 to trade at 3,700, representing upside potential of 11% from Tuesday's close, said Stifel.
• Visit Business Insider's homepage for more stories.

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The stock market has shrugged off a lot of economic pain caused by the COVID-19 pandemic and marched to near all-time highs over the past five months.

Now, the bill has come due, according to Stifel.

See the rest of the story at Business Insider

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