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World This is how to know the stock market is approaching the peak, according to Fundstrat's Tom Lee

17:38  27 january  2021
17:38  27 january  2021 Source:   businessinsider.com.au

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  • More and more investors are increasingly concerned that the stock market is in a bubble.
  • The market certainly has a "risk-on" feel as epic short squeezes in names like GameStop unfold.
  • This is how to know when the stock market is approaching its top, according to Fundstrat's Tom Lee.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell .

Investors are growing increasingly concerned that the stock market is in a bubble after soaring to record highs amid a global pandemic.

Legendary investor Jeremy Grantham said last week that the stock market is in a bubble that could inflate further if President Joe Biden's $US1.9 trillion stimulus plan is passed.

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"If it's as big as they talk about, this would be a very good making of a top for the market," Grantham said, adding that "when you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years."

And Grantham isn't alone. According to a recent E*Trade survey, a majority of investors believe the stock market is in a bubble.

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Out of 904 active investors who manage at least $US10,000 in an online brokerage account, 66% of them think the market is either fully or somewhat in a bubble, according to the E*Trade survey. An additional 26% said the stock market is "approaching a market bubble," while only 8% said stock valuations are "not close to a market bubble."

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The market is certainly in "risk-on" mode, as evidenced by the epic short squeeze in GameStop fuelled by a group of retail investors that frequent Reddit's WallStreetBets forum.

But according to FundStrat'sTom Lee, the stock market rarely approached a top when everyone is warning about an imminent stock market bubble burst.

Instead, the stock market tends to top when consensus says "there is nothing stopping this market from going higher." Right now, the opposite seems to be happening, according to Lee.

"We find many sceptical of stocks, that this is all 'retail driven,' [and the] plurality of our clients are reluctant to be too cyclically tilted," Lee explained.

"So I find a pretty health level of 'bearishness' out there," Lee concluded.

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'Big Short' investor Michael Burry paved the way for the GameStop frenzy when he bought a stake in 2019. Here's the story of Burry's game-changing bet. .
Michael Burry of "The Big Short" laid the groundwork for the GameStop short squeeze. The Scion Asset Management boss purchased a stake in the video-game retailer in 2019. He also pushed for changes in three letters to GameStop's bosses. Visit Business Insider's homepage for more stories. "The Big Short" investor Michael Burry unknowingly lit the spark that ultimately led to the GameStop frenzy last week. Burry bought a stake in GameStop in 2019 because he determined the stock was undervalued. He penned three letters to the video game retailer's bosses, urging them to buy back shares and clean up their act.

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