Is the NASDAQ in a BUBBLE?

The stock market has come a long way from the mid-March lows. In mid-February, the spread of coronavirus worldwide caused a significant correction in equity prices as investors and traders sold just about any stock with a ticker. The VIX index, which reflects the implied volatility of put and call options on shares that trade on the S&P 500, rose to a high of 85.47 in March, the highest level since the 2008 financial crisis and the second-highest level in history. The VIX tends to…

increase when the stock market declines because market participants purchase price insurance or options during market corrections.

Meanwhile, the stock market has come storming back since the March lows in what has been a V-shaped recovery. Since the 2020 bottom, the tech-heavy NASDAQ (QQQ) has been the leader of the pack as it is the only index that has risen to a new all-time high. The NASDAQ was above the 10,500 level at the end of last week. Before March, when all of the indices were at record levels, the NASDAQ peaked at 9,838.37. The explosive move in technology stocks could reflect a significant change in consumer behavior, or it could be a bubble that is waiting to burst.

The tech bubble over twenty years ago was ugly

Just before the turn of the century, the “dotcom bubble” burst. The value of technology equities grew exponentially, pushing the NASDAQ from under 1000 in 1995 to over 4800 in 2000.

In 1996, the Chairman of the Federal Reserve, Alan Greenspan, warned of “irrational exuberance.” He was early. By 2002, the NASDAQ was back below the 1000 level, reaching a low of just under 800. It took almost a decade and a half for the index to revisit the high from 2000.

The tech-heavy NASDAQ leads the market- mirage or reality?

The global pandemic has hastened the death of retail and supported gains in many technology stocks. At the same time, unprecedented levels of liquidity from the Federal Reserve and other central banks worldwide have fostered a buying frenzy in stocks, with technology once again leading the way. While all of the leading indices on the stock market have rallied, only the NASDAQ has risen to…

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