The stock market’s year-long boom has been accompanied by a familiar question on Wall Street, one that’s as old as the 17th century and as fresh as this spring’s tulips: Have stock prices been in a bubble destined to pop? Now, the bubble conversation has shifted to whether the air is seeping out, with major market indexes pulling back in March and the tech-heavy Nasdaq flirting with the 10% threshold that marks official correction territory. (Prices and returns in this article are as of March 5.)
Investors should not dismiss the chatter about whether an overinflated market has started to deflate. The Dutch tulip bulb mania in the 1600s wiped out fortunes. Euphoria during the Roaring Twenties led to the 1929 crash and Great Depression. The collapse of Japan’s asset bubble in 1991 resulted in decades-long stagnation. And the end of the internet-stock craze 20 years ago wiped out 80% of the Nasdaq’s value.
Although true bubbles tend to end badly, it’s possible that despite bouts of turbulence, especially in speculative pockets of the market, stocks this time around will resume their upward trajectory. We’ll share some strategies for this challenging market below. But it’s worth noting that bubbles can only be identified in hindsight, and we’re not there yet. Moreover, they can go on longer than you’d think. In late 1996, then–Federal Reserve chairman Alan Greenspan warned of “irrational exuberance,” but stocks kept rising until early 2000.
Esta historia es de la edición May 2021 de Kiplinger's Personal Finance.
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Esta historia es de la edición May 2021 de Kiplinger's Personal Finance.
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