Is It Time To Worry?

There are signs that the market is getting ahead of itself, but price gains have been even crazier in the past

- PAT REGNIER

The initial public offering market is manic. Stocks haven’t been this expensive since the dot-com era. The Nasdaq 100 has doubled in two years, leaving its valuation bloated—all while volatility remains stubbornly high. It’s a setup that’s left investors sitting on fat returns after a year that defied easy explanation. It’s also one that has a growing cohort of experts warning about a bubble.

Knowing when market rallies turn from logical to excessive is always tough. It was almost impossible as 2020 ended, with interest rates pinned near zero and the federal government unleashing an additional $900 billion to stimulate the pandemic- stricken economy. But history offers clues, and several current market conditions meet criteria likely to be found on a bubble checklist. “Are there areas of the market that are in a bubble? Yeah, clearly,” Peter Cecchini, founder of AlphaOmega Advisors, said in late December on Bloomberg’s What Goes Up podcast, adding that “many of those are obviously speculative technology companies.” A study by Harvard researchers published in 2019 said that while not every stock market surge meets with disaster, those that do share some attributes, including increased share issuance, heightened volatility, and a sector or index that both doubles in price and beats the broader market by more than 100 percentage points over two years. Check, check, and almost check.