Bubble Jitters? Here's How to Invest Defensively and Still Make a Buck

investing.com:

The S&P 500 has surged by +9.7% in the initial 56 business days of 2024. This marks the 15th best start to a year since 1928.

Here's a breakdown of those years and the corresponding gains in the first 56 days:

What's intriguing is that out of those 14 years is that, in 11 of them, the S&P 500 kept on extending gains after the great start.

It's only in 1930, 1931, and 1987 that a different scenario played out. In all other years, it rose extensively, with increases ranging from the least at +2.4% (2012) and +4.3% (1986) to the most substantial at +15.4% (2019) and +14.8% (1936).

All of this leads us to the question of whether the market is in a bubble, a concern on many investors' minds.

Specifically, the fear revolves around the Magnificent 7 (Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), Nvidia (NASDAQ:NVDA), and Tesla (NASDAQ:TSLA).

Before addressing this, let's delve into what constitutes a speculative bubble and examine some famous examples. Then we'll tackle the question head-on.

A speculative bubble emerges when market prices experience significant and rapid increases, surpassing the intrinsic value of that market. This doesn't imply that rising prices lack justification, but rather signifies an exceptionally swift ascent.

When the robust demand abruptly dissipates, it typically triggers the bursting of the bubble, causing prices to plummet steeply (with the same intensity as their ascent), often resulting in the loss of all accumulated value.

Bubbles are fueled by the misguided notion of perpetual price escalation, an irrational belief that prompts investors to make increasingly aggressive purchases they wouldn't consider in different