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Analysts Warn Of Stock Market Correction Amid Overstretched Valuations

The young and dumb investors have created a total nightmare in the stock market. These are sentiments shared by Smead Capital Management president Cole Smead at a time when valuation levels appear to be overstretched. According to Smead, the nosebleed valuation affirm stock market failures at the hands of inexperienced millennials.

 Millennials Buying fever

Millennials are increasingly flocking the market and helping push valuation higher in total disregard of underlying fundamentals. The taking of oversized risks has seen equities rise to record highs even as the global economy faces uncertainty owing to the COVID-19 Pandemic.

Smead points to the way that the young and dumb investors have continued to bet on stocks in total disregard of the fundamentals. The buying of options poised to expire in two weeks is a clear indication of how investors are no longer cautious.

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Amid the buying fever, Smead believes things could get ugly amid the accommodative policies, should the market turns for the worse. The outsized valuations amid uncertainties and slow growth continue to fuel concerns of a potential sell-off.

Smead sentiments come at a time when baby boomers are increasingly offloading their stakes in the market in a process that threatens to have serious implications on the supply and demand for equities. While boomers own half of the stock market, their holdings has been decreasing as millennials continue to increase their holdings.

While millennials are the largest subset of the population, they still lack the size and financial muscle to absorb very much of the ongoing boomer liquidation. The good news is that market balance still remains given that stock ownership is still concentrated at the upper end of the wealth strata.

Market Correction Warning

Separately, former Goldman Sachs hedge fund Chief, Raoul Pal, has raised the red flag reiterating that the stock market is teetering a great deal. Conversely, a small correction could morph into something big, resulting in massive losses for the masses.

According to Pal, the global economy is undergoing three distinct phases amid the COVID-19 induced rout. Liquidation rout and insolvency. The longer the global economy remains under pressure, the likelihood of it having a negative impact on the stock market.

Merry Markets is the home of free financial news and analysis on Forex, Stocks and cryptocurrencies. Check out our latest trading guides on spread betting, CFD Trading, and commodities trading.

Ruchi Gupta

Ruchi Gupta covers various beats from finance to technology and from lifestyle to hobbies. She has an MBA in Finance. Ruchi enjoys writing on celebrities and political news. She likes traveling and exploring places.

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