There’s a ‘mania’ in stocks, but investors face an even greater danger, warns Nobel Prize-winning economist



‘It’s very hard to escape the sense that there’s mania now, that this is a FOMO market. When you look at the way that people have piled into the stocks of bankrupt companies like Hertz there’s clearly something, a bit of mania going on.’

That’s Nobel Prize-winning economist Paul Krugman explaining to CNBC why the “fear of missing out” is driving this market ever higher, even though the risks continue to mount.

Indeed, the S&P 500
SPX,
-0.64%
,
shrugging off the rising number of U.S. coronavirus cases, has benefited from a sturdy run in technology stocks to a gain of more than 6% over the past month.

“[Tech stocks] are riding on the prospects of economic recovery in Asia and Europe even as the U.S. completely mucks things up,” Krugman said, adding that many retail investors have been drawn into the equity markets due to a lack of alternatives, such as the historically low-yielding bond market.

While many pundits are quick to blame the Federal Reserve for inflated stocks, Krugman told CNBC that he doesn’t see how the central bank had much of a choice.

“They could not have stood by and allowed a financial crisis on top of the viral crisis, so this is what had to happen,” he said. “And if there’s some mania in the markets, well that’s what happens.”

The way things stand now, the national debt isn’t much of a concern for Krugman, who said a big infrastructure program is a “no-brainer” for policymakers. “At this point with everything else going on, the great danger is that we spend too little, not too much,” he said.

Here’s the full interview:

Meanwhile, the stock market hit a slight bump in the road in Tuesday’s trading session, with the Dow
DJIA,
-0.77%

, S&P and Nasdaq
COMP,
-1.27%

all moving lower.



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