Stock Rally Poses Question: When Does a Bull Become a Bubble?
The bull market, born out of the pandemic, has turned a year old. The remarkable turnaround has some analysts wondering if the breakneck pace is sustainable.
Daily close of the S&P 500
The New York Times
By Matt Phillips
The bull market turned a year old on Tuesday, a testament to the unbridled enthusiasm that let investors shrug off the economic carnage of the pandemic and buy stocks — and pretty much anything else.
Since the S&P 500 scraped bottom on March 23 last year, the blue-chip index has posted a rally of nearly 75 percent, even with a 0.8 percent fall on Tuesday. Tesla’s stock is up more than 650 percent, while true believers have pushed up shares of GameStop by over 4,500 percent. Bitcoin is booming, and so are even more esoteric assets like NFTs.
It’s enough to pose a question that would have seemed unfathomable a year ago.
“Is this a bubble?” said Garry Evans, chief strategist for global asset allocation at BCA Research. “I would say there are certainly pockets of the market that look bubbly.”
Mr. Evans said he didn’t see “a generalized bubble” but believed that individual stocks — like GameStop, which was driven up in January by retail traders gathering on sites like Reddit — and cryptocurrencies were overvalued.
“Those are definitely individual bubbles,” he said.
Few on Wall Street will ever predict a broad-based bubble, the overenthusiastic rise of prices that can be ruinous to investors when they burst. So it’s remarkable that the b-word is on anyone’s lips when you consider the outlook a year ago. The stock market had plunged nearly 34 percent and finally bottomed out on March 23, 2020.
The sell-off stopped only after the Federal Reserve took steps to cut interest rates almost to zero and restarted bond-buying programs that bought trillions of dollars in government-backed debt to get money flowing through financial markets. Stocks began climbing again, and accelerated as the government provided aid including expanded unemployment benefits and three rounds of direct stimulus payments worth as much as $3,200 a person.
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