For years, I have seen many stock market bubbles form and then burst. Stock market experts seem to sing the same old tune. They are looking beyond present conditions toward what they believe will happen in the future.
Bubbles usually form when there is too much optimism and tend to burst when the economic reality sets in. The basic human suffering from Covid gets more and more insane by the day. The reality on the ground is that the spread of Covid 19 is getting worse in the U. Just three stocks make up more than a third of the Nasdaq Index. I bet you can guess which three. In a true bull market, you see most stocks rising, often to new highs. A rising tide should lift nearly all boats.
The market has already assumed that current earnings will be bad. Analyst earnings projections tend to overestimate even in good times and analysts tend to have a herd mentality, usually tracking one another. I found a chart by Jim Bianco to illustrate a possible valuation bubble. The problem with stock market bubbles is you can never predict when they will burst. The most notable one was the dot com bubble that formed from to and burst in There are a few stocks today that are valued similar to some of the past dot com stocks.
Tesla is a perfect example, it has a market value of billion based on sales revenue of 25 billion. You can also add Shopify to the bubble list that has a market value at billion with only 1. Some economic reality may set in next week with the release of second quarter GDP on Thursday July However, publicly trading companies on Wall Street have a number of advantages over Main Street.
I agree with comments made by Fed Chair Jerome Powell who cautioned of a potential credit crunch as stimulus dollars start to dry up. The result would be the loss of thousands of small and medium sized businesses across the country.
