By Joyce Yu
Philadelphia, PA–Sentiment was hit badly after former Federal Reserve chairman Alan Greenspan warned about bubbles in stocks market. Wall Street slumped sharply on open Thursday before recovering most of its loss and moving sideways.
In an interview with Bloomberg TV on Wednesday, Alan Greenspan said, “There are two bubbles: We have a stock market bubble, and we have a bond market bubble.” The trouble in the bond market “will eventually be the critical issue, but for the short term it’s not too bad.”
This is the first time to hear skepticism from Greenspan about the stocks market even though his view on bond market isn’t new. Last July he said that bonds, but not stocks, were in a bubble.
Once called Trump’s tax bill a mistake, Greenspan flagged out doubt about President Trump’s economic agenda during the interview. He said, “I was very much surprised that in the State of the Union all those new initiatives were not funded.”
The new programs and existing social safety nets are expected to explode government spending, blowing a hole in the budget. That could cause interest rates to rise rapidly, speeding up inflation. “We are dealing with a fiscally unstable long-term outlook in which inflation will take hold,” Greenspan said. “We’re working our way towards stagflation.”
Healthy growth of global and U.S. economy has fueled the market to continue to rally, bolstering sentiment. Some analysts have warned that the rapid rise in prices was based on emotion, not fundamentals. But apparently Greenspan’s comments are going a step further by calling the market an outright bubble which most market strategists don’t see as yet.
“I don’t see big bubbles,” said David Kelly, chief global strategist at JPMorgan Funds. “I see small bubbles, but on a rising tide of enthusiasm. There is no “obvious bubble like tech stocks in 1999 and the housing bubble in 2007.”
Stocks were also under pressure after the release of weaker-than-expected productivity numbers which fell 0.1% in the fourth quarter. Economists polled by Reuters expected a gain of 1%. Today also marks the busiest days of the U.S. earnings season, with about 70 companies reporting.
Companies including Alibaba, Blackstone, DowDuPont, MasterCard, Ralph Lauren and UPS published results before the bell, and all beat expectations except for Alibaba which reported slightly lower earnings. Google’s parent company Alphabet, Amazon and Apple are set to report their after market close.