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Brief: Nikkei 225, DAX Index, Hang Seng Rallies – Legend Warns of a Bubble

The Nikkei 225, Hang Seng, Nasdaq 100, and other global stocks are rallying today after the Georgia election. Similarly, in Europe, futures tied to the FTSE 100, DAX Index, and CAC 40 are also in high spirits. Bitcoin and other altcoins are also enjoying the ride even after a sharp warning by an investment legend.

What’s happening: Global stocks, including Nikkei 225, are rallying today as investors brace for more stimulus in the United States. This is after the two Democrats contenders in Georgia won against their Republican contenders. 

As such, with Democrats controlling all branches of government, investors hope that there will be more stimulus in the next few weeks. For one, they have already lined-in trillions of dollars in infrastructure, states and local governments, and checks to individuals. 

Also, investors believe that the Biden administration will not prioritise tax increases in the near term, which will support the economy.

But: There are concerns that the global equities market is acting like a big bubble. For one, cryptocurrencies are now worth more than $1 trillion and Tesla’s valuation has soared to more than $700 billion. In a note yesterday, Jeremy Grantham, the founder of GMO, warned that the bubble was getting bigger. Grantham is widely-known for warning about the 2008 financial crisis. He wrote:

“These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part.”

Nikkei 225 technical outlook

The Nikkei 225 index soared to 27,648, which is the highest it has been since August 1990. On the weekly chart, it is still above all moving averages while the Relative Strength Index (RSI) has moved to the highest level since January 2018. Therefore, in the near term, the Nikkei index will continue rising as bulls remain in control. However, we cannot rule a pullback in the near term.

Nikkei 225 technical chart

Nikkei 225