Stock market crash: ‘the everything bubble’ is already bursting!

With the S&P 500 index suffering its worst week in a year, is the stock market crash already here? Or is froth just being blown from speculative assets?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

In 35 years of investing, I’ve hardly ever seen US stocks perform as they did in 2019-21. Despite the worst global pandemic in a century, the S&P 500 has climbed three years in a row. The index soared by 28.9% in 2019, jumped by 16.3% in 2020 and surged by 26.9% last year. And these gains exclude cash dividends. Furthermore, in the past 10 years, the S&P 500 has recorded only two losing years: -0.73% in 2015 and -6.24% in 2018. Hence, after a decade of near-unstoppable gains, I’m increasingly worried about the next stock market crash.

Stock market crash: when bubbles burst

The last time I remember stock markets being this exuberant — even feverish — was in 1995-99. During this half-decade, the S&P 500 index rose every year for five years. These returns (excluding dividends) ranged from a high of 34.1% in 1995 to a low of 19.5% in 1999. These were the so-called ‘dotcom boom’ years, when investors were seemingly willing to pay any price to buy into technology, media and telecoms (TMT) stocks. Alas, just as night follows day, the dotcom boom turned into the TMT bust. During the 2000-03 stock market crash, the S&P 500 lost 10.1% in 2000, 13% in 2001 and then crashed by 23.4% in 2002. From peak to trough, the S&P 500 lost more than half of its value (-57%), while the tech-heavy Nasdaq index crashed by 78%. Yikes.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Some bubbles are already bursting

Since November, warning signs are showing that the ‘bubble of everything’ is starting to burst in certain assets. With US inflation running at a 40-year high, interest rates are set to rise in 2022-23 to curtail rising consumer prices. This is already having a negative effect on asset prices, especially those of the riskiest of risk assets. And although there is little firm evidence that rising rates actually trigger stock market crashes, investors are clearly more worried now than they were last autumn.

Since peaking at a record intra-day high of 4,818.62 points on 4 January, the S&P 500 closed at 4,397.94 on Friday. That’s a loss of 420.68 points (-8.7%) in 17 days. Another fall of 1.3 percentage points would take the main US market index into correction territory. A further fall of 10 percentage points would take the index into a bear market and thus a fully fledged stock market crash. Meanwhile, the pumped-up Nasdaq index peaked at 16,212.23 points on 22 November 2021. On Friday, it closed at 13,768.92, having lost 2443.31 points (-15.1%) from its high. Another 4.9 percentage-point fall and the tech index would also be in bear territory — unless investors ‘buy the dip’, of course.

Also, the biggest bubbles have burst the hardest. Take, for example, ‘digital gold’ Bitcoin — which its supporters say is a hedge against inflation. Having peaked at nearly $69,000 in early November, Bitcoin currently trades at $35,432, falling to a six-month low on Saturday. That’s a collapse of almost half (-48.7%). Likewise, Tesla stock has crashed from its record high of $1,243.49 on 4 November to close at $943.90 on Friday. That’s a collapse of nearly $300 (-24%) in under three months. Tesla has also crashed by more than a fifth (-21.3%) since 3 January. Ouch.

I’m avoiding speculative assets

Just like Warren Buffett, I’m not as afraid of stock market crashes as once I was. Currently, my family portfolio has no speculative assets in it, only US/global index trackers and ‘boring’ FTSE 100 shares. No over-priced bonds, no volatile cryptocurrencies, no electric-vehicle stocks and nothing overly risky. For now, my value strategy remains exactly the same: to keep on buying cheap, lowly rated UK shares paying high dividends!

Our 5 Top Shares for the New “Green Industrial Revolution"

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special "Green Industrial Revolution" presentation now

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

More on Investing Articles

Saucepan on a gas hob
Investing Articles

The Centrica share price is up 65%. Here’s why I sold

The Centrica share price has soared nearly two-thirds in a year. So why has our writer dumped his shareholding?

Read more »

Modern suburban family houses with car on driveway
Investing Articles

As the Howden Joinery share price falls, I’d buy and hold

The Howden Joinery share price has been falling. But Christopher Ruane likes its business model and is weighing adding it…

Read more »

Hand holding pound notes
Investing Articles

The tumbling Persimmon share price means an 11.3% yield! Should I buy?

A falling Persimmon share price has pushed the dividend yield into double-digits. Our writer considers his next move.

Read more »

Innovation and new ideas lightbulb concept 2022
Investing Articles

As stock markets crash, I’d buy these 4 FTSE 100 fallers!

After US stock markets tumbled on Wednesday, the FTSE 100 duly followed suit on Thursday. But falling share prices revealed…

Read more »

Compass pointing towards 'best price'
Investing Articles

A 7.6% dividend yield! Is the Aviva share price a bargain not to be missed?

The Aviva share price has recovered well since the 2020 stock market crash. As one of the top FTSE 100…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Stock market crash: I’m hunting giants for future gains!

In this latest stock market crash, selling pressure is slamming share prices. But some great company stocks are being crushed,…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

With a P/E of just 8, this social media newcomer is a cheap stock pick!

This social media firm looks like a cheap stock pick for my portfolio. For a growing tech firm, it certainly…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Warren Buffett has been selling dividend stocks. Should I be doing the same?

As Warren Buffett sells out of Abbvie, Bristol-Myers Squibb, and Verizon, our writer wonders whether he ought to be looking…

Read more »