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Has Anyone Considered That Maybe We’re Not In A Stock Bubble?

It’s been a good year, but it’s not a huge outlier.

As you’re probably aware, it’s been a good year for the stock market. All major stock indexes have been hovering near record highs. The S&P 500 could quite easily notch six dozen record closes by the end of 2021.

That’s impressive, no doubt. Still, it’s not unprecedented historically. If you look back at the first ten months of the last seven presidential administrations, four of these periods had lower stock market returns as measured by the Dow Jones Industrial Average than we’ve seen under Biden. But two had higher returns.

In fact, if one looks back at stock market growth over time, it becomes apparent that new record highs are really not that uncommon. According to an analysis of data from January 3, 1950 to April 22, 2015, the S&P 500 (or what became the S&P 500 after a few years there) set a new record high on 6.96% of days. That’s about 25 days per year, on average.

A year like this one, where we are set to reach about three times the average for record S&P 500 highs, is a good year for stocks. It’s not a huge outlier though. Fairly frequently, slow years for the stock market are followed by significantly better ones, or there are several excellent stock market years in a row, or there is a year of negative returns followed by a surge year. We’re not in completely uncharted waters here.

You sure wouldn’t know that though from all the hysterical articles being blasted across the internet lately with warnings from supposedly messianic investors that we’re totally screwed.

“Legendary” investor Jeremy Grantham (who I’d never heard of before, as someone who writes regularly about these sorts of things) told Bloomberg last Friday, “When the decline comes, it will perhaps be bigger and better than anything previously in U.S. history.”

Really? Good thing there are zero consequences for making these kinds of apocalyptic predictions in interviews when you turn out to be wrong in a few months. Everyone just continues to not remember that you are a person.

“There’s a whole series of bubbles going on right now,” Richard Bernstein, an Institutional Investor Hall of Famer (whatever that is), said last month. He was at least more circumspect, and limited his perception of a market bubble to limited sectors like tech innovation, cryptos, and “that type of thing.”

Even actually famous (from being portrayed by Christian Bale in “The Big Short”) investor Michael Burry has hopped on the bubble bandwagon, saying that the entire asset class of crypto represents the biggest bubble of his career. Burry has also continued to repeatedly pummel the extremely high valuation of Tesla stock (which is probably a fair criticism, and that’s coming from a Tesla stockholder who thinks the vehicles are cool).

It’s hard to say what’s going to happen with crypto, because that’s a truly new asset class and no one has all that much experience with it. And to be fair, some of these analysts have decent points about certain segments of the market if you actually get into the nuances of what they’re saying.

When it comes to the broader stock market though, I think it’s just easier to get likes and retweets with an article that says, “Someone important thinks doom is upon us, so start bottling your urine now because it is going to be the only commodity with any value after the epic impending stock market crash.”

On the other hand, articles (like this one) that say something more like, “Eh, the stock market is doing well, it’ll probably go down a bit here while we work through supply chain and inflation issues, but then it will keep generally going up again like normal,” are not going to do as well when plugged into the fear- and sensation-based social media algorithms.

Are we in a stock market bubble? Maybe. Or maybe we’re just in an economy where businesses are doing well because Americans sitting on a large pile of cash they’ve accumulated over the course of the pandemic are now doing their darndest to spend it. My money’s on the latter.



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