Why Market Bubble Fears Might Be Overblown
Stocks reaching new highs often suggest that more highs could be on the way. However, occasionally, the market takes a break, similar to a runner stopping after covering a long distance.
A decline, sooner or later, is considered healthy during a raging bull market. However, these are just assumptions; nobody can accurately predict corrections.
The S&P 500 has surged by more than 25% since late October last year and a correction could be in the cards.
Corrections, unlike recessions, could extend up to declines of 20%. Here's a list of market corrections since 2000:
However, people are now calling it a bubble, even though they initially dismissed this upward trend as just a temporary market rally in late October 2023.
People tend to misinterpret the definition of a market bubble. Here's what happens at the end of a bubble: a complete collapse. Technically, there have been very few instances of such collapses.
Since 1974, when the S&P 500 yielded returns of at least 100% over three years, historical data indicates instances of market bubbles (observed in 1987, 1999, 2012, and 2021).
However, in the last three years, the return has been around 30%, aligning with the general average return. This suggests that the current market condition may not be indicative of a bubble.
Comparing the present bullish market and the current excitement around artificial intelligence to the dot-com bubble, often cited as an example of a bubble, reveals a significant difference.
The recent returns and trends in the market indicate that there is still considerable room for growth before reaching bubble-like conditions.
The trend is in line with the past trend but it is very early, just look at the number of days that are still supposed to pass.
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