The new all-time highs reached this week by the S&P 500 and the Nasdaq put the market capitalization of US equities at a figure that is equivalent to 276% of the country’s Gross Domestic Product (GDP).
In a note to his clients, Tony Pasquariello, global head of hedge funds in the Global Markets Division of Goldman Sachs compiles some of the the most striking data marking the fastest economic recovery in history.
Among them, of course, the boom experienced by the American stock market backed by ultra-accommodative politics from the Federal Reserve, which in the past 16 months has nearly doubled the size of the balance sheet, from $ 4.2 trillion before the pandemic to more than $ 8 trillion today.
During the same period of time, public expenditure The US has amounted to $ 9.1 trillion (including $ 5 trillion in aid related to the pandemic). This has resulted in a federal budget deficit equivalent to almost 15% of GDP (for both fiscal 2020 and 2021).
In this context, other dynamics registered to date may not be surprising either. This highlights how the basket of stocks with higher short positions (mainly “meme” stocks such as GameStop or AMC) have returned 46% so far this year and accumulated increases of 323% from the lows reached by the S&P 500 in March of last year. This blazing rise has been driven by retail investors and especially foreros on Reddit and other social platforms.
On the other hand, the market also records record levels of new issues, either through conventional, secondary, convertible IPOs or those known as SPAC, special purpose purchase companies or “blank check” companies, whose purpose is to go public to raise capital with the promise of buying a company that will be listed in your place in a certain period of time.
On the other hand, as they point out from Goldman, the housing market on this side of the Atlantic it registers a new price record while inventories hit all-time lows.
Going forward, the bank’s targets for the end of 2021 and the next 12 months for the S&P 500 are as follows. 4,300 points (+ 1%) and 4,450 points (+ 5%), respectively from current levels. From Goldman they warn that although the VIX is currently at its 2021 low, there are several sources of potential volatility that could shake the markets.
Some examples are the surprises of potential sustained inflation, higher interest rates, possible corporate and capital gains tax reform, as well as technology regulation and geopolitical tensions.