Are We in a Market 'Bubble'?

It's the question on many of your minds... Is this a stock market "bubble"? This actually needs to be tied to the answer to another question: What is a stock market "bubble"? As much as pundits talk about "bubbles," they seldom spend time talking about what it means. I believe that a "bubble" is about […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily Weekend] Are We in a Market 'Bubble'? By Enrique Abeyta It's the question on many of your minds... Is this a stock market "bubble"? This actually needs to be tied to the answer to another question: What is a stock market "bubble"? As much as pundits talk about "bubbles," they seldom spend time talking about what it means. I believe that a "bubble" is about losing money. A "bubble" means that there is a high probability that a group of assets will lose a lot of money – think 50% or more... and often as much as 75% to 90%. Sure, there could be all kinds of other definitions. But ultimately, all we care about is making or losing money, right? So... do I think that right now there is a large group of assets where there is a high probability of significant financial losses? The answer is yes. (However, we have seen a lot more in the past.) In the stock market, many of the hottest areas – such as electric vehicles ("EVs"), Software as a Service ("SaaS"), and Internet companies – have seen such elevated valuations that it is highly probable that these stocks will go down a lot at some point from here. Of course, this doesn't mean that these aren't good – or even great – companies... During the Internet Bubble, many businesses eventually went on to become incredible companies... but their share prices still went down massively. Just think of e-commerce titan Amazon (AMZN). Today, EVs are a great example. Here at Empire Financial Research, we are huge fans of this space and have been both early and vocal with our belief in this sector. Just take two recent companies – Rivian Automotive (RIVN) and Lucid (LCID). These appear to be great companies with good management, great products, tremendous investors, and a high likelihood that they will be some of the leaders in the space. That said, the two companies today have a combined market capitalization of roughly $100 billion with no revenues. Perhaps Rivian and Lucid will eventually become trillion-dollar companies like market leader Tesla (TSLA)... but there is an exceptionally high probability that their stocks will go lower before they achieve that status. A colleague of mine has discussed market bubbles as a "time machine" and said that the valuations of these companies have borrowed from the future. It is our view that, at some point, they will need to catch up, and we doubt they will do so by going sideways for a decade. --------------------------------------------------------------- Recommended Links: [Hedge fund legend calls 'The End of Real Estate']( Few people see what's coming. But Whitney Tilson is predicting the end of real estate. And it's already starting. [Tilson reveals everything right here](. --------------------------------------------------------------- [Famed NYU professor Scott Galloway: Metaverse is a 'flaming bag of s**t']( Wall Street legend Enrique Abeyta disagrees. In fact, he believes it's the most important tech of the next 100 years. And he's identified four stocks you should own right now if you want the chance to get rich. [Get the full details right here](. --------------------------------------------------------------- Back to the original question, though... Is the stock market in a bubble? While I have seen plenty of areas with bubble-like price action, I don't think the overall stock market is in a bubble. Many folks who think it is point to valuation metrics. Many of these metrics look like they're around all-time highs. There are many arguments that could be made that many (most) of these metrics need to be adjusted by the level of interest rates and/or the profitability of modern corporate activity. But as regular readers of my work know, I'm generally less interested in valuation than I am in price action. Want to see a bubble? Check out this chart of the tech-heavy Nasdaq Composite Index from 1998 to 2001...  You can see that the Nasdaq was heading steadily upward... but then in October 1999, the index went ballistic. In just six short months, it went up almost 90%, or a compound 10%-plus per month for six months. Now that is a bubble... So with that in mind, let's see what the Nasdaq looks like now...  COVID-19 sell-off aside, you can see that the ascent has been slower. You could argue that from October 2019 to November 2020, the Nasdaq was up the same 90% as it was in 1999 to 2000... But keep in mind that the recent move higher was across two years, not six months. As a result, I believe there are 'bubble' influences in the stock market, but not a full stock market bubble... If (when) we see a velocity of gains in the stock market similar to what we saw in 1999, then I would become much more concerned. Additionally, during that period we saw a much greater effect on the overall economy from the bubble activity. The same was true during the housing bubble of 2007 and 2008. Both of these asset bubbles resulted in excesses in the real economy. When the assets deflated, these excesses in the economy were also wrung out, and this resulted in people losing their jobs and going bankrupt. Considering the current activity, we could eventually get there... But at this point, it's hard to say that we are there overall in the economy. So... what does this mean for you? If I'm right, there's still a lot of money to be made in the stock market. However, selectivity is more warranted than ever. Perhaps the easy money is done being made in the asset "bubble" stocks, but there should still be plenty of opportunities in certain sectors in 2022. Right now, I see an incredible opportunity in one specific corner of the market... We're on the cusp of a world-altering technology that's on the verge of changing everything about our lives... And this could be the best time in history to buy the stocks of companies involved in this transformation. Right now, we're in front of an estimated $1 trillion technology that's just getting started. I haven't seen anything like it since the dot-com mania of the late '90s. In fact, I've identified where the next big wave of money is headed. In a brand-new presentation, I share all the details... [Learn more here](. Regards, Enrique Abeyta February 12, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](