Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22
UK House Prices Real Terms Sustainable Trend - 17th June 22
Why I’m buying the “new” value stocks… - 17th June 22
Optimize Benefits from R&D in Software Product Development with an R&D Tax Credit Software - 17th June 22
Want To Save On Your Business Energy? Here Are Some Helpful Tips - 17th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why the Stock Market is Not a Bubble

Stock-Markets / Stock Markets 2013 Nov 24, 2013 - 04:18 AM GMT

By: Investment_U


Alexander Green writes: In the past week, there have been major stories in both The Washington Post and The Wall Street Journal – as well as a cover story in Barron’s – asking the same pointed question: Is this stock market a bubble?

And my column in Investment U last week raised a warning flag, too, about a bull market that’s starting to show its age. So it’s understandable that people are getting nervous.

But at the risk of spoiling the suspense: No, this is not a stock market bubble.

The current bull market began on March 9, 2009, and is currently up 167%. That is more than the housing bubble, when home prices more than doubled from 2002 to 2007, but not nearly as big as the Internet stock bubble between 1990 and 2000, when the technology-laden Nasdaq rose 417%.

Bears point to the frothy Twitter (NYSE: TWTR) IPO – the social-media company’s shares surged 73% in a matter of days – and the 300% move in Tesla (Nasdaq: TSLA) this year. But a couple of bubbly stocks don’t represent an entire market.

Every bull market is followed by a bear market (and vice versa). And at nearly five years, the current bull market is older than average.

The Signs Aren’t There

But the current stock market doesn’t contain the two factors present in every genuine financial bubble: sky-high valuations and wild-eyed optimism.

Sure, the Dow has recently hit several consecutive all-time highs. But 16,000 is only a number, not a valuation based on sales, earnings, dividends or book value.

For instance, when the Dow hit 11,000 in March 2000, the index sold for more than 30 times earnings. Thirteen and a half years later, while the market is nearly 50% higher, it sells for only 16 times earnings, very close to the long-term average. And most foreign markets – especially European ones – trade at even lower valuations.

So while stocks are near record highs, valuations are nowhere near them.

The other major indicator of a bubble is sentiment. For true believers at the time, Internet stocks represented “a New Era” and real estate was a seemingly can’t-lose proposition.

But that kind of silliness is nowhere apparent today.

Yes, mutual fund cash-flow figures show that ordinary investors are moving back into stocks. But that hardly means the bull market is over.

What a lot of pundits don’t seem to understand is that, historically, everyday investors are right most of the time. They are usually in for bull markets and out for bear markets.

Where they get it wrong is at the extremes: being too pessimistic at market bottoms and too enthusiastic at market tops. So we should be looking for signs of euphoria among ordinary investors.

But I don’t see it right now. Most investors are moving into stocks not because they see nothing but blue skies ahead but because they are earning nothing in cash and next to nothing in bonds. So they are sticking their necks out a bit. And there’s nothing wrong with a bit of prudent risk-taking.

So don’t buy the fear stories that are circulating. Yes, the market can sell off at any time for reasons we can’t foresee.

But are we in a bubble right now?

Absolutely not. We have neither the high valuations nor the overly optimistic sentiment to make that case. So while we are certainly well into this nearly 5-year-old bull market, it still has room to run.

Good investing,



Copyright © 1999 - 2013 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in