Investors’ appetite for stocks may withstand rising Treasury yields.
According to Wall Street forecaster Jim Bianco, the obsession to take on risk will overpower inflation concerns for at least the next several months.
“It is a mania. I know that word scares people, but it shouldn’t,” the Bianco Research president told CNBC’s “Trading Nation” on Tuesday. “The great thing about a mania is you make a lot of money fast. The hard thing about a mania is getting out with that money.”
Bianco suggests it’s the wrong time to bail on stocks. He believes the market is early in the manic stage, and he draws a comparison to the 1990s boom.
“[Alan] Greenspan in December of 1996 said ‘irrational exuberance,'” noted Bianco. “But it wasn’t until March of 2000 and 300% higher that the Nasdaq peaked. So, we’re somewhere in that range. The market is still going to run the mania phase.”
He sees the government’s massive stimulus measures to keep the market and economy working as a major catalyst. With Covid-19 vaccine distribution growing and more optimism surrounding reopenings, Bianco expects investors will put more money into stocks and other risk assets.
“They think it’s a reflation trade, so the path of the stock market will continue to be up,” said Bianco. “If they’re rising because earnings are coming back, people are getting their jobs back, standard of living is going up, that’s OK.”
‘Biggest fear I have’
Even though Bianco doesn’t see an imminent inflation comeback, it’s the top issue on his watch list. He views it as a serious risk later this year due to trillions of dollars being pumped through the markets and economy as coronavirus relief.
“Later on down the road, the problem is you get your wish. You get your wish of a good market, and that produces inflation — something we haven’t seen for 30 years,” he said. “The biggest fear I have is whether or not inflation returns in the second half.”
On Tuesday, the benchmark 10-year Treasury note yield reached 1.30%, its highest level since last February, and the S&P 500, Dow and Nasdaq hit record highs.
For now, Bianco isn’t ready for rates to influence his near-term bull case for stocks.
“The path of least resistance is more money gets thrown at the market, and it goes up,” Bianco said.