This Stock Market Bubble May Not Be So Bad

Bubbles that are not so bad

Bitcoin, meme stocks, SPACs, and penny stocks are all the rage to start 2021. What could possibly go wrong?

Perhaps nothing will. But if you are someone who is more of the “stay wealthy” type instead of one of those “get wealthy now” folks, this is an uncomfortable market climate. Some historical perspective can help.

This is where we are through the first 7 weeks of 2021:

2021, for starters


Yet in this pandemic-era bull market melt-up, something is troublesome about that. As someone who follows the markets with great intensity, and has since the 1980s, when the mainstream indexes get overshadowed every day by the level of excitement and attention being paid to the most speculative ends of the market, it calls for an assessment. And, some history.

Back in 2000, as the D0t-Com Bubble was playing its final inning, the Nasdaq was the toast of investors everywhere. It was, after all, the home of the cool new companies. The S&P 500 was pushed to the background, relatively speaking.

That’s what happens when a bubble is in place, and a market index (Nasdaq 100) floats up 29% before the first quarter is even finished. That’s what happened in 2000. The S&P 500 had a fine quarter, but its sub-5% return to start that year was, in a strange way, not so noticeable.

2000’s fast start

However, in 2000, that was the end of the ride for the Nasdaq. Here’s how the full year 2000 looked for that index. Despite that roaring start, the bubble burst, sending the “Naz” down below where it started the year. In fact, that happened in only 2 weeks.

QQQ in 2000

Let me clarify that: when the bubble popped, the Nasdaq 100 fell over 30% in 2 weeks! And that decline continued in fits and starts, before ending with a full year 2000 loss of more than 36%, as you see in purple above. Not shown is that the S&P 500 fell 10% in those first 2 weeks, and ended up down about 9% for the full year 2000.

This is an excellent time to take account of where some of those less-travelled investment roads are. Rising interest rates, commodities and some value sectors and non-U.S. areas increasingly look like non-bubble areas.

So, enjoy the bubble in stocks while it lasts. But don’t let your FOMO-emotions overtake your most high-priority investment objectives.

Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors.

I spent the first decade of my career on Wall Street. I have spent the last 2 decades helping people understand Wall Street. A thought-leader, 3-time author and former