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- Stocks will rise because the Federal Reserve and the day-trading boom are driving up prices, Bianco Research chief James Bianco told CNBC’s “Fast Money” on Tuesday.
- The Fed’s decision to buy individual corporate bonds has put a “massive floor on this market,” Bianco said.
- David “Davey Day Trader” Portnoy and his “retail bros” are piling into stocks because they’re confident the Fed will shore up prices, making it tough to be bearish right now, Bianco said.
- “You have to find something so powerful to bring the market down that even the Fed’s unlimited printing and the Davey Day Trader crowd buying like mad is not gonna be able to stop it,” he said.
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Stocks will climb higher because the Federal Reserve is shoring up prices and day traders are buying without fear, James Bianco, president of Bianco Research, said on CNBC’s “Fast Money” on Tuesday.
The US central bank’s unprecedented interventions – which now include plowing up to $250 billion into individual corporate bonds – have “put a massive floor on this market,” the investment analyst said.
That safety net, combined with easy access to zero-commission and fractional trading across multiple platforms, has sparked a surge in retail investing, Bianco continued. Notably, Barstool Sports founder David Portnoy, who goes by the nickname Davey Day Trader, now captains an “army” of day traders or “retail bros.”
“When you talk to them or read the Reddit boards, the word “Fed” always comes up – that they are not going to allow the market to go down,” Bianco said.
The combined forces of Fed Chair Jay Powell and Portnoy’s trader platoons make it difficult to justify a bearish stance, Bianco continued.
“You have to find something so powerful to bring the market down that even the Fed’s unlimited printing and the Davey Day Trader crowd buying like mad is not gonna be able to stop it,” he said. “That’s a high hurdle.”
However, Bianco cautioned that stocks are already overvalued and “there will be a reckoning somewhere down the line,” for instance if the economy reopens but fails to bounce back.
Bianco made similar comments on CNBC’s “Trading Nation” on Tuesday.
“This is a market that’s destined to go higher,” he said. “We could have new highs before the end of the year.”
Bianco, who moved entirely to cash in early March in response to the coronavirus threat, rationalized his shift from bear to bull.
“I did not appreciate what the Fed’s actions to support the market were gonna do to the retail community,” he said.
“There has been a massive flood of money” from retail investors, he continued, because they believe that markets “always go up, you can’t lose, the Fed is there.”
The retail inflows show few signs of stopping and threaten to inflate an already overvalued market, Bianco added. The frenzy could be halted by a second wave of coronavirus infections, a sluggish economic recovery, or a change in the Fed’s behavior, he cautioned.
But for now, he said: “I think it’s foolish to stand in the way of it.”
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