Bubble Frenzy
Since the COVID-19 pandemic initially tanked the market back during March 2020, there has been a strong wave of recovery in the stock market occurring, while millions of Americans were losing their jobs. Many experts’ opinions were dead wrong on what the recovery would look like. Despite this stock recovery and 2021 continuing the trend, the economy continues to see job loss, high inflation levels, and other issues. But, as always, the federal government is using fiscal policy to stabilize the economy as much as possible. This traces back centuries but one major example of the government involving itself was during the dot-com bubble of the early 90s.
This is because 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 in dot com companies. Today, the interest rate is near 0% but investor angst is growing that it may rise. As a result, a dot-com bubble scenario is something people fear repeating. On top of this, investors who fuel bubbles are piling into tech stocks just as they did two decades ago, in fact, tech investors are writing bigger checks than ever. According to CB Insights, start-ups have raised $292.4 billion globally so far this year, on track to beat the $302 billion raised throughout 2020.
But it’s not just smaller companies that are rising fast like in the dot-com bubble, but blue-chip tech stocks. For example, companies like Amazon, Google, and Facebook, have crossed the $1 trillion mark, and Microsoft and Apple are currently worth more than $2 trillion. Some have pointed out that the trends aren’t that similar and there isn’t much to be worried about because the dot-com bubble was driven mainly by “hype” because the internet was a new invention, whereas now, there isn’t an invention of a magnitude drawing the masses in. Do you think that a dot-com bubble scenario will repeat?
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.
