Investing.com | Mar 05, 2024 04:47AM ET
Stocks reaching new highs often suggest that more highs could be on the way. However, occasionally, the market takes a break, similar to a runner stopping after covering a long distance.
A decline, sooner or later, is considered healthy during a raging bull market. However, these are just assumptions; nobody can accurately predict corrections.
The S&P 500 has surged by more than 25% since late October last year and a correction could be in the cards.
Corrections, unlike recessions, could extend up to declines of 20%. Here's a list of market corrections since 2000:
However, people are now calling it a bubble, even though they initially dismissed this upward trend as just a temporary market rally in late October 2023.
People tend to misinterpret the definition of a market bubble. Here's what happens at the end of a bubble: a complete collapse. Technically, there have been very few instances of such collapses.
Since 1974, when the S&P 500 yielded returns of at least 100% over three years, historical data indicates instances of market bubbles (observed in 1987, 1999, 2012, and 2021).
However, in the last three years, the return has been around 30%, aligning with the general average return. This suggests that the current market condition may not be indicative of a bubble.
h2 Tech Bubble Vs. Bull Market/h2Comparing the present bullish market and the current excitement around artificial intelligence to the dot-com bubble, often cited as an example of a bubble, reveals a significant difference.
The recent returns and trends in the market indicate that there is still considerable room for growth before reaching bubble-like conditions.
The trend is in line with the past trend but it is very early, just look at the number of days that are still supposed to pass. In the 1990s there were huge gains in unprofitable dot-com companies, many of which had attractive growth prospects but no viable or sustainable profit base.
Today the enthusiasm is concentrated in the largest companies with prolific and defensible profits. Nvidia (NASDAQ:NVDA), Meta (NASDAQ:META), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA).
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