The Stock market is Crazy right now. These valuations are reminiscent of the dot-com era. The Nasdaq 100 has doubled in two years. These gains have made a lot of investors much richer, however, at the same time, a lot of analysts are starting to warn us of the stock bubble.
There are good reasons why markets have rallied. Governments are printing money like crazy and interest rates are near zero. Investors are trying to save the buying power of their cash by investing in the stock market and cryptocurrencies. It`s always hard to know when to expect a correction, however, there are some clues pointing to it right now.
If we believe to a study by Harvard University researchers, which was published recently, not every stock rally ends with disaster, however, those that do correct drastically share some commonalities which are: increased share issuance, heightened volatility, and a sector or index that doubles and is twice as high as the broader market. We can see all of that happening right now.
“Are there areas of the market that are in a bubble? Yeah, clearly,” Peter Cecchini, founder of AlphaOmega Advisors LLC, said on Bloomberg’s “What Goes Up” podcast, adding that “many of those are obviously speculative technology companies.”
In an interview for “Marketplace Morning Report” from the BBC World Service, Iconic Investor Jim Rogers issued a note of caution about market conditions but said iron ore, copper, silver, and gold remain strong bets as we close out an unpredictable and volatile year.
“I think everything has done badly,” Rogers said. “People couldn’t work, people couldn’t eat, people couldn’t do anything. But as I look around the world, bonds are certainly in a bubble. Stocks in some countries are near highs. Property in many places is in a bubble. About the only asset class I see that’s still cheap, are commodities.”
If we do see the bubbles popping, this will be happening very quickly. Since most of the trading nowadays are done by computer and algorithms the drop will be drastic, however the market will be rebounding quickly as well. Investors should be ready to buy the dip.
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