Markets Head For ‘Bubble Territory’ Amid Unexpected Wholesale Inflation Increase

U.S. stock were trading in a narrow range but adding small gains on Tuesday as markets reacted to an unexpected increase in producer prices, or wholesale inflation data. The data and news largely weighed down any benefit from a snap election in Japan and better-than-expected data from Germany.

The Labor Department reported prices at the wholesale level rose 0.2 percent in October, missing expectations for a modest 0.1 percent drop. When excluding food and energy prices, prices rose by 0.4 percent, which was the biggest increase since June 2013 and above Wall Street’s expectations of a small 0.1 percent rise.

The U.S. stock market continues to “run deep into bubble territory” and setting itself up for a whopping crash, wrote co-founder and chief investment strategist of Grantham Mayo van Otterloo, Jeremy Grantham, in a quarterly newsletter released Monday. He said bubble territory is at 2,250 on the S&P 500, only another 10 percent gain from where the markets are now.

The S&P 500 index (INDEXSP:.INX ) was up 8.4 percent to 2,049, while the Dow industrials (INDEXDJX:.DJI) increase by 42 points to 17,690. Futures for the Nasdaq-100 index (INDEXNASDAQ:NDX) added 20 points to 4,233.

Grantham is certainly not alone in his worry that the market is now grossly overpriced after years of Fed policy artificially propping up equity prices. Billionaire investor Carl Icahn told a Reuters conference on Monday that he’s also worried about a market selloff, and Mislav Matejka, a strategist at J.P. Morgan Cazenove, said in a note Monday that they have moved on the eurozone and cut positions in U.S. equities.

In a nutshell, the thinking is that U.S. equities are overpriced and the eurozone has grossly underperformed, now being posed for a gain.