Wall Street Awaits Another Tech Bubble

The recent fall of tech stocks on Wall Street led to rising concerns regarding the outlook for the stock market, amid worries that recent surges and record-breaking activity went in the opposite direction of the troubled economy due to the Coronavirus (COVID-19) crisis.

“I think we are certainly in bubble territory,” Jonathan Bell, the Chief Investment officer at Stanhope Capital, told CNBC on Monday.

Last week, tech stocks listed on the S&P 500 index lost more than 4%, after the tech sector recently carried out the market to new highs, which prompted concerns of strong corrections from what is seen as a bubble.

Furthermore, a recent opinion article published by the Financial Times suggested that this US stock bubble could rank among the biggest in history.

According to Andrew Parlin, “bubbles are formed around individual stocks and sectors,” and the recent increase in Tesla’s market capitalization is evident as per the article to the speculations surrounding the tech and electric vehicles sectors.

Meanwhile, Bell suggests that good reasons led many investors to rush to the stocks of Alphabet, Amazon, Apple, Microsoft and Facebook, with these companies achieving higher revenues amid the COVID-19 pandemic.

According to Bell, “It’s not that these businesses aren’t great businesses that are going to carry on going, it is just the exuberance related to them.”

The biggest five tech stocks now account for a staggering 20% of the New York Stock Exchange (NYSE) market cap.

“You’ve got exuberance on just a very small number of stocks. That’s certainly bubble territory,” Bell explained.

The stock of Tesla on the other hand rose to a market capitalization of around $400 billion, compared with only $80 billion in March, and $40 billion last year.

It is fair to say that last week’s fall led many to speculate further corrections while it remains to be seen whether a bubble burst could be seen soon. “When and how this ends is impossible to say,” Parlin noted.