Bubble Talk Is Double Talk

Published on: 07/15/2021

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo dispel the rumor that the stock market is in a bubble.

 

TRANSCRIPTION:

TONY:

Hi I’m Tony Ogorek, I’m here with Portfolio Manager, Jeff Viksjo, and today we’re going to dispel the rumor that the stock market is in a bubble with our chart of the day.  You know Jeff, it’s understandable when people look at the performance of companies such as Tesla, GameStop, AMC, and other what we call Meme stocks, that things are out of control, but really those are just isolated incidences and really what we see in this chart is something a little bit more informative.

JEFF:

Yeah Tony, stocks are up 95% since the lows hit last March, so naturally all the news is this talk of bubble, that the market’s behaving irrationally, that we’ve never seen anything like this before, but that’s really not true.  If we just go back to the last bear market, which was the Great Financial Crisis, the recovery from that point was very similar to COVID and that’s what we’re showing you on this chart today.  So, the blue line is the recovery from the Great Financial Crisis.  The whole line is about 2 years, so this is about March 2009 to March 2011.  The orange which lays on top of it is the recovery from COVID, so starting in March 2020.  As you can see, the recoveries are eerily similar.  The returns 3, 6, 9, and 12 months, from the bottom, are almost on top of each other.

TONY:

And Jeff, really what this chart is showing, is that markets do respond to very low interest rates and they do respond to a lot of Government intervention in terms of Congress putting money out there.  We certainly expect that to continue.  We’re looking at, what I think, is a $3 Trillion deficit for this year.  So, our expectation is what, probably that the markets will continue to do well in this environment, right?

JEFF:

That’s right.  Interest rates remain low and they’ve even been heading lower.  If you’re looking at this chart trying to predict where we are going to be in 2 years, I would just say, the recovery is probably not going to stay on the trajectory it’s on.  The gains will be more muted from here, but I think this does dispel the bubble talk.

TONY:

Good.  So, really what we’re trying to do is to, like Jeff said, dispel any bubble trouble that’s out there.  And hopefully you’ve got a little insight from today’s chart.  We look forward to seeing at our next Chart Talk.

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