#STOCK BUBBLE HOW TO#
#STOCK BUBBLE PROFESSIONAL#

The following chart shows the price-sales multiple for the S&P 500 and for its information technology sector over the last 25 years. And there is little case that there are true speculative bubbles outside the US. Stocks don’t exist in a vacuum other asset classes matter. There is a difference between a bubble, which implies overextended and unsustainable valuations that can only be corrected by bursting, and an overvalued market. But it is worth returning to the debate that was consuming commentators until last week’s reflation spasm: Is the US stock market in a bubble? This renewed optimism may or may not persist. GameStop shares rose again, as did the prices of bitcoin (up 14.4% from its Sunday low at the time of writing), and Tesla (up 6.5%). US equity markets are almost back to all-time highs. Strong manufacturing data from the US and western Europe, and a rebound for Treasury yields, didn’t stand in the way of a rally in stocks. Relative to a gauge of global liquidity, markets don’t look as extended as they were in 2000 or before the global financial crisis.Ī new month, and a new attitude to menacingly rising bond yields. – Melani Nathan The money gusher says there’s no stocks bubble yet

#STOCK BUBBLE HOW TO#

He unpacks the intricacies of the US Bubble debate and how to avoid being swept up in “irrational exuberance, if not outright stupidity”, as he puts it. An investor also needs to choose metrics and definitions which they trust, says John Authers. In answering the question of a US stock market bubble, one must decipher noise from signals. If earnings expectations come down, it would trigger another lurch downward for stocks.It seems that whether or not a bubble is brewing is all a matter of perspective. Some critics say those forecasts as still too optimistic. Analysts are forecasting growth weakened to the slowest pace since the end of 2020, according to FactSet. All companies are meanwhile contending with higher costs for fuel as gasoline prices soar and for labor as workers demand higher wages amid a red-hot jobs market.Ĭompanies are soon to report how much profit they made during the spring. Several big-name retailers including Target have warned recently about their customers changing their buying behavior as the pandemic wanes.

With inflation seemingly still accelerating, that risk is growing. If that were to happen, investors could get hit with a double-whammy pulling down both stock price levers. Another dangerous possibility is if corporate profits weaken sharply. The risk for Wall Street going forward is that even though a lot of air has come out of the bubble, more could still leak out. But across the S&P 500 index, stock valuations are now only marginally above their average for the last 50 years, after earlier soaring to their most expensive levels since the 2000 dot-com mania. Some pockets of the market still look pricey, such as high-growth and smaller stocks, according to strategists at Credit Suisse. 'Investors are coping with the problems of the day by letting the air out of bubbly valuations,' Opsal wrote in a report. On the profit side, analysts actually raised their forecasts. That meant their drop in stock prices, a median of roughly 25%, was entirely because of investors' decreased willingness to pay high prices. It shows how much investors are paying for each $1 of a company's earnings, with a few variations.Īcross the largest 1,000 companies, one measure has investors paying nearly 29% less for the median than in November, according to Scott Opsal, director of research and equities at Leuthold.

#STOCK BUBBLE PROFESSIONAL#

With the Federal Reserve jacking up interest rates to knock down inflation, investors are much less willing to pay sky-high prices for stocks when safe bonds are offering better returns.Īnalysts and professional investors look at something called the price-earnings ratio to gauge investors' willingness to own stocks. So far, Wall Street's focus has been only on that second part. The bad news: That won't matter if corporate profits give out.Ī stock's price rises or falls for essentially two reasons: how much cash a company generates and how much an investor is willing to pay for it. NEW YORK - The good news for stocks is that this year's sell-off means they no longer look eye-wateringly expensive.

Stock bubble