Anyone who is evenly remotely following the stock market knows that the last several months have been extremely volatile. In the last 5 months, $576 billion in new money has flowed into the markets. This number dwarfs the $452 billion that had been invested in the stock market over the last 12 years. The fact that the last 5 months have seen 127% more money invested into the market than the entire amount of funds invested since the 2008 crash is staggering.
The root cause for this surge in investing remains unclear. It is likely that individual retail investors account for some portion of the funds injected into the market but the actual percentage is unknown, or unavailable. The $6 trillion in stimulus packages that have been issued by the federal government over the last year certainly have contributed to this glut of new investment. Market speculators have been riding the wave as the economy reopens from Covid shutdowns and the major market indexes have reflected this influx of cash, trading at levels not seen since the 2000 dotcom bubble. However, as occurred during the 2000 bubble, market observers are expecting a correction. Deutsche Bank expects "6% to 10% pullback over the next three months as economic growth peaks".
Essentially, the message being broadcast by major financial institutions is that this unprecedented growth is unsustainable and is due for a reversion to the mean. That is not to say that the period of growth is over, rather that the volatility that has been seen over recent months is only going to get worse before finally settling. At least that is the theory. Recently valuations of companies like GameStop as well as others have not been accurately reflected by the stock price as investors and day traders play the markets throughout the trading day. In short, the traditional view that the stock price is representative of the valuation of the company has been ignored by investors. With the rise of crypto and tech companies who do not have the infrastructure or physical assets to justify their valuation, investors have focused more on future projections and ballpark estimates of the value of intellectual property.
Traditional market observers like CNBC have been wrong in the past and some investors are betting that they are wrong again. Whether the unprecedented growth seen over the past months is representative of future performance, or if the bubble is going to burst, crashing stock prices and wiping portfolios, will be borne out over the coming months. The most likely scenario is that there will be some reversion to correct for the overvaluation of stocks over the past few months. However it is also possible that a new era has arrived in which accurate correlation of a stock price to a company's valuation is no longer relevant. The latter scenario seems less likely than the former. Hopefully the correction will be less severe than the ones seen in 2000 or 2008 but at this point, given the extreme levels of volatility, anything is possible.
As someone who knows close to nothing about big business or the stock market, I have been bombarded this last year by non-stop interest in what the market is doing. Much like anything else during this past year, I chop it up to the extra time people are having during the pandemic. Many people close to me took the opportunity to study trends and stay up to date with the latest meme-stocks in an attempt to get ahead of the pack. I learned how to cook, so while I definitely made less money than them, I also made more great meals. No matter what the market does over the next few months or year, no matter if their money grows…
I've thought we have been in one for quite some time since the market has breached all time high after ATH. I've witnessed meme coins beating my yearly ROI in the blink of an eye(DOGE) that I was too "smart" to buy into. I truly don't know what's going on with the market right now, but I'm learning to think differently about markets, and learning to block outside noise in regards to where I think the market is heading. Most times I've tried predicting market trends instead of riding them, I have tended to overthink my way out of profit/gains. I think I read some quote someone said about markets along the line of "People lose more money in opportunity…
At the beginning of the pandemic, I never would have guessed that by the end of COVID we would be in a stock market bubble. With the government offering stimulus checks and those who pulled their stocks out before COVID reinvesting, it'll be interesting to note when the stock volatility finally returns to normal. Will it be after everything returns to normal and things are reopened, or before? How big will the drop be? I for one would continue to hold the line in hopes that the market crash isn't around the corner.
Having some stocks of my own, this is very concerning. Like many others, the prospect of opening up many businesses after Covid serves as a great opportunity to invest, but this bubble has me on edge. Like you mention, nobody really knows how much individual investors make up total market activity and recent stimulus checks likely mean the number is higher than we expect. While, the notion that we are partaking in unsustainable growth is a scary one, it likely will not deter me from holding onto my shares. I, along with others, can only hope that this mentality is widely adopted and that when the backlash hits it doesn't hit too hard.
This is extremely concerning! I don't understand why the federal government would just print a couple trillion dollars for stimulus checks. Do they have a plan in terms of who is going to be responsible for the extreme inflation? Or do they expect the whole world to buy dollars to dilute it? It sounds like the federal government is irresponsible, reckless even if I'm interpreting correctly. I have so many questions.