Blowing Bubbles
Since the COVID Pandemic initially tanked the market back in March, we have seen virtually nothing else but a strong wave of recovery in the stock market. This occurred, even though millions of Americans were losing their jobs. As a result, many experts’ opinions were dead wrong.
Along the way many events have shifted the market’s narrative, with major investor optimism, vaccines launching and Elon Musk becoming the third richest man in the world, a lot of things were unique about 2020 whether you like them or not.
Despite this, however, some experts are drawing some similarities to the past. Specifically, a major rise in SPACs and IPOs and the sky-high valuations given to pre-revenue Electric Vehicle companies occurring at the same time as a major rise in the NASDAQ. In 1999 the NASDAQ jumped 86%, and in the past 2 years the NASDAQ has surged 94%. DataTrek co-founder Nicholas Colas sees this interestingly as he said, and I quote: “So, smash 2019 – 2020 together and you (sort of) get a 2000-style setup.” In case you don’t remember or were barely around back in the early 2000’s, like me, the dot-com bubble was essentially a bubble caused by excessive speculation of Internet-related companies. Some investors and experts have pointed out a key difference between 20 years ago and today having to do with the Federal Reserve.
During the dotcom bubble The Federal Reserve raised interest rates at the same time stocks peaked which cooled down the soaring US economy and popped the bubble. Back then interests rates were at 5.85% and investors could reap returns from safer bonds rather than continue to invest into dot com companies. Today, with the interest rate near 0% and not set to rise anytime soon due to the pandemic, another bubble may be kept at bay.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
