It’s officially Holiday season and I am looking forward to celebrating with Family and Friends. I may enjoy a libation over the Holidays, but that is the only thing Bubbly I am worried about at the moment.
As the major indices climbed through Dow 16,000, S&P 1800 and Nasdaq 4000 there has been a significant increase in the talk of a market bubble. Granted I can accept the argument that the market may be fully valued or even expensive depending on some metrics, but I disagree with the bubble talk.
I believe that Investor Psychology is as much a part of a bubble as extended prices. Think back to the Tech Bubble or the Housing Bubble. In both cases, investors felt that they couldn’t lose regardless of the price. There was broad group think and market talk was pervasive. Remember when Taxi drivers were offering unsolicited market advice?
Chart courtesy of @Ryknow
The markets have had a long period without a substantial pullback or correction, but I don’t think we have entered the mania phase typical of bubbles shown above. Valuation should always be a constant when evaluating the markets, but so should investor psychology. I think that your average investor* is far from Euphoric about this market.
So for now, hopefully the only Bubble you are worried about is the one you will be pouring in your glass this season.
*According to Gallup's annual Economics Personal Finance survey, which was conducted in April, just 52% of Americans are personally or jointly with a spouse invested in the stock market. This is the lowest level since at least 1998.