In the case of soapy water, you get a little wet and slippery. In the case of equity markets, we get distressed, at least while the bubble deflates. Equity markets are fun while they rise and set new records and not so much when they get a little wacky. How much higher is too much? Do you know? Does anyone know?
I’m starting to hear about market bubbles. It seems funny, but every time I’ve listened to this caution, the bubble does not seem to pop; is that just me?
Here’s my take:
- The pandemic simultaneously drove our equity markets into a bear-market correction and a recession in the first two quarters of last year. In my opinion, that effectively concluded the downward phase of the previous business cycle, which began circa 2009.
- A new Global Business Cycle has begun, it appears: In the U.S. The Bureau of Economic Analysis estimates of GPD growth for the third quarter of 2020 registered a growth rate of 33.1%. The 4th quarter’s projected GDP growth rate by the Atlanta Federal Reserve Bank exceeds 7%. Globally, The International Monetary Fund projects a 3.4% growth rate in 2021 from a previously reported 3.3% growth rate in 2020.
- Whereas a few technology names previously drove equity market prices upward, the current market movement has been widespread across many industries, sectors, and capitalizations. In our experience, when market breadth is consistent with market prices, markets continue to rise for the foreseeable future.
Could markets correct? Sure, do you breathe? Could we have another severe correction or bear market? Of course, even one induced by a Black Swan Event, Covid anyone?
For now, enjoy the bubbles, dance among them, hold them in your hand; the future seems brighter from here.
Carlos Dominguez – CERTIFIED FINANCIAL PLANNER™, Portfolio Manager, RJFS
Photo by: Andrew Wulf @andreuuuw (cropping by me)
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