12-year-old bull market; SPAC mania; IPOs that more than double on the first trading day; an army of amateur traders and GameStop mania. It certainly feels like irrational exuberance–and it triggers alarms for those who remember the dot-com bubble of the late 1990s. “The parallels we have today are historically very, very concerning,” notes Jim Stack, president of Whitefish, Montana’s InvesTech Research and Stack Financial Management. “The current froth is the icing on the cake, and when you look through it, you see a lot of other underlying issues.”
Despite a steep 30% market correction last year, the longest bull market on record has helped the S&P 500 surge nearly 300% over the past ten years–roughly in line with the growth in the ten years preceding the dot-com crash in 2000, after which stocks plunged 40% over two years. Forbes analyzed 11 key market metrics that flashed warning signs just before the stock market crashed in March 2000. Bearish signals outweigh bullish ones, but contrarian investors should take comfort in the old adage that stock markets tend to climb a “Wall of Worry.”
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SOURCE: Forbes, Jonathan Ponciano