{"id":9339,"date":"2021-03-01T18:28:53","date_gmt":"2021-03-01T18:28:53","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9339"},"modified":"2022-02-26T13:05:54","modified_gmt":"2022-02-26T13:05:54","slug":"company-and-sector-bubbles-vs-market-bubbles","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/company-and-sector-bubbles-vs-market-bubbles\/","title":{"rendered":"Company and Sector Bubbles vs. Market Bubbles"},"content":{"rendered":"\n

George B. from Vancouver,\nWA asks: <\/em>Hello Mitch, I\u2019m writing to ask you about the possibility of\nmarket bubbles. It feels like everywhere I look, there are stocks up 100%,\n200%, even 300% from the bottom. This is particularly in tech and companies\nlike Tesla. What are your thoughts on this whole thing bursting?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for emailing, George. You\u2019re not alone in your\nconcern about bubbles \u2013 I think many people are wondering if the market is\nrunning too hot, and if some reckoning is just around the corner. <\/p>\n\n\n\n

In order to avoid burying the lead, let me say this first \u2013\nthese are the very times when owning a diversified portfolio of stocks makes\nthe most sense, in my view. Because I\u2019m in agreement with you \u2013 there are many,\nhighly overvalued stocks, and an excess amount of liquidity is bidding up stock\nprices. But that does not necessarily imply bearish conditions are ahead for\nthe entire market. <\/p>\n\n\n\n

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From fears of a bubble bursting to unknowns surrounding the pandemic, investors today face many challenges and unknowns. <\/p>\n\n\n\n

Instead of trying to predict how these unknowns will unfold,\nI suggest planning for any outcome. Knowing where you stand financially is a\ngood start to preparing for a successful financial future. Building an\nefficient strategy to grow your net worth is also critical to your financial well-being and can help you reach\nyour long-term goals!<\/p>\n\n\n\n

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Let\u2019s take Tesla for example, from your question. Tesla is\ntrading at sky-high valuation, making it the fifth most valuable company in the\nUnited States. But if Tesla were to disappear tomorrow from the face of the\nEarth, and its stock price plummeted to $0 in the process, I seriously doubt it\nwould even create a ripple in the broader economy. Tesla is a rapidly growing\ncompany with enormous potential, but its operations are still very small\nrelative to the economy (and even the auto industry). Tesla is not intertwined\ncritically the entire global economy, and in fact, many competitors would be\nhappy to see the company gone.2<\/sup><\/p>\n\n\n\n

Hopefully you\u2019re seeing my point here. Bubbles may exist for\nindividual companies, and probably several sub-sectors and sub-industries. But\nif some bubbles burst here and there, the biggest losers would be the companies\nand investors who have made major capital commitments to the companies. Bubbles\nget bad when companies overinvest, investors take on major debt to finance long-shots,\nand\/or banks extend too much in financing companies\u2019 operations. I\u2019m not sure\nwe\u2019re seeing any of these conditions today. <\/p>\n\n\n\n

One factor to consider going forward, I think, is whether\nsome bubbles bursting could drag on sentiment. A crash of some kind could give\nthe feeling that something has gone awry with the economic recovery, and it\ncould create a sense of fear or panic \u2013 which could hurt spending. I see this\npossibility as only a short-term risk in 2021, however, because we still have a\nbackdrop of mass immunization in the months ahead and a return to economic\nnormalcy. Seeing some bubbles burst here and there may actually give people the\nsense that it was only a matter of time \u2013 not a sign that something bigger is\nwrong. <\/p>\n\n\n\n

At the end of the day, when I look at the broad market, I do\nsee some cases of what appear to be bubble stocks, but I don\u2019t see a bubble in\nthe broader market and the economy. That\u2019s why I think it\u2019s smart to remain\ndiversified.  <\/p>\n\n\n\n

Market bubbles form and you never know if or when they are\ngoing to burst. While we may not know how the market will be affected\nlong-term, knowing your net worth can be critical to your financial well-being\nand can help you prepare for what\u2019s ahead. If you do not currently know your\nnet worth, then now may be a great time to calculate it. <\/p>\n\n\n\n

If you have $500,000 or more to invest and want to\nunderstand how to measure your net worth, download our guide Measuring Your Net\nWorth.3 <\/sup>Simply click on the link below to get your copy today!<\/p>\n","protected":false},"excerpt":{"rendered":"

Company and sector values are skyrocketing, but will the entire market pop?<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9339","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9339","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9339"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9339\/revisions"}],"predecessor-version":[{"id":10448,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9339\/revisions\/10448"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9339"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9339"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9339"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}