Let's Talk About Bubbles

This time, however, it might be different.

- Maarten Mittner

Renewed record highs on the Nasdaq and S&P 500 have raised the specter of a market bubble floundering on the reality of adverse economic conditions.

US markets appear out of sync with the economic realities of a still highly active global pandemic, weak company earnings, and subdued economic data – with even the US Federal Reserve (Fed) warning that more uncertainty lies ahead. All market losses have been recovered since March, and the Nasdaq has surged more than 25% since January.

Billionaire investor George Soros has been one of those warning of a bubble that could deflate soon, as with the dotcom bubble in 2000.

Asset managers caution that the US economic recovery might not be the desired V-shape as anticipated, but rather be in the form of a K-shaped recovery where some companies have rebounded while others are still in the doldrums. In contrast with the tech surge, average stocks on the S&P 500 are about 30% off their peaks, prompting some to rename the index the ‘S&P 5’ to reflect the unhealthy market dominance of the high-flying tech companies.