The Everything Bubble

2020 was a crazy year for financial markets with lots of volatility and unexpected events left and right. In 2021, the crazy train is still chugging along. Since the bottom of the market dip in 2020 the overall market has surpassed its former highs. Using SPY (S&P 500 index) as a guideline for the overall market we can see that a hasty recovery has occurred. Before the 2020 market crash SPY traded for $337, at the bottom of the crash SPY traded for $228, and now SPY is trading at nearly $420. Among this speedy stock market recovery we have also seen Real Estate prices soar as well as Cryptocurrencies. The rapidly rising prices in each of these markets begs the question…

Is there a bubble in all of these markets? 

Stocks:

At the start of the lockdowns, businesses large and small were impacted in some way shape or form. Locking down a country dramatically slows down an economy and how quickly money moves through it. In essence, the lockdowns restricted all consumers from buying products which then affected how well businesses performed. When people began to realize this they also realized that businesses were no longer as valuable as they once were. So everyone began selling their stocks causing a market crash. 

In an effort to prevent the economy from coming to a complete standstill, the Fed began an expansionary monetary policy. Dropping their lending rates and buying debt securities to provide liquidity to companies. In addition, the US government passed several stimulus bills which injected even more money into the economy. All of this economic assistance prevented companies from economic hardship. This then led people to begin buying back into stocks, rising the market.

Now we are at a point where we can see the recovery process in full effect. Which means businesses will soon be operating like they used to. This realization has led many to invest even more into the stock market in anticipation of a fully functioning economy. It is this anticipation which is bringing about new highs in the market.  

Real Estate

I’ve gone over the current inflated Real Estate market before so I’ll be quick with this. If you want a more in-depth explanation check out my article about it here:

https://the-common-trader.com/2021/04/26/housing-bubble-2021/

In essence, the pandemic caused a strong supply shortage and a surprising increase in demand. The simple laws of supply and demand dictate when this occurs, price will increase. So housing prices increased a lot. However, these prices cannot hold forever. Eventually the economy will reopen in full and return the supply and demand of housing to more expected volumes. 

Cryptocurrency

With crypto being as new as it is and more influenced by smaller events, it’s harder to say why crypto to risen so much. That being said, like anyone else, I can give my own opinion. Amidst the pandemic began a skepticism against traditional currency. This led a small amount of investors to explore crypto. In addition to this, companies began to accept some crypto and even invest into crypto. By accepting and investing into crypto, companies gave it more utility and acceptance. The increased utility and acceptance/popularity led a large number of investors to consider crypto. Ultimately starting a rise in the crypto market across the board, leading the market to where it is now. 

My Thoughts

A quick recovery and high prices in all markets would make anyone skeptical. However, we must remember the pandemic is not a common occurrence. An event like this does not happen every month, year, or even decade. This powerful event shook business around the world. We should expect some odd trends to occur in the markets as a result. The fact that stocks, real estate, and crypto are at all time highs at the same time gives some credibility to their price. Especially stocks and real estate. Those two markets are fairly independent from one another so the fact that they are both soaring in price gives some indication that both are not in a bubble. However, I do not think that current prices are reflective of true value at the moment. I think there is some inflation of price and a correction(s) will occur but a bubble? More than likely not. 

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