Is The Stock Market “Super Bubble” Turning Into a “Super Storm”?

Last year, the IT industry drove the US stock market to unprecedented heights.

But that all seems like ancient history, as fears that the Federal Reserve will end the period of free money.

The markets have started to swing like the rattle in the hand of a baby throwing a fit while the potential conflict in Ukraine looms overhead like an exasperated parent.

This scenario has some predicting a severe correction, comparable to the dotcom bust of the late 1990s.

The stock markets in the United States plummeted on Monday, only to rebound the next day. The Dow Jones fell nearly 1,000 points at one point before recovering to just over 100. Analysts predict that the days ahead will be more tumultuous. The Federal Reserve updated its intentions to raise interest rates to combat inflation on Wednesday, while the world’s top IT companies are prepared to report their latest results to investors, who appear to be growing more pessimistic of their prospects.

Jeremy Grantham, a British co-founder of Boston-based investment firm GMO, says the United States is presently in a “super-bubble” similar to the dotcom boom, the 1929 Wall Street crash, and the 2006 housing market mania. Not only has tech exploded, but so have home prices, commodities, and bond prices.

According to Grantham, the unwinding has already begun. It is unlikely to come to an end very soon.

The newest test of investor fortitude will be Microsoft’s latest quarterly earnings, which will be released later on Tuesday. The Seattle-based software behemoth is likely to report daily sales of more than half a billion dollars and a profit of more than $17 billion dollars. Huge figures, but will they be sufficient for Wall Street?

This week, Apple, Tesla, Intel, and Samsung will be followed by Alphabet, Amazon, and Meta, with more to come next month — a litmus test for a newly acerbic outlook on a sector that already dominates the financial markets and much of daily life.

One of the pandemic’s winners has already demonstrated how much the attitude has shifted. Netflix, which soared during the pandemic’s lockdowns, saw its stock plummet after a poor earnings report last week forecast a slowing in membership growth.

Netflix’s difficulties, according to Brian Wieser, head of business intelligence at GroupM Global, may have been the impetus for a shift in investor confidence in the industry. “Investors often want a spark for action,” he explained. The growing cost of capital has investors concerned that the days of explosive expansion are numbered.

However, he claims that this is not a rerun of the dotcom bubble. Today’s tech behemoths have massive cash hoards and are still turning a profit. ““This year, Netflix will spend $20 billion on programming,” he stated. Apple has almost $195 billion in cash on hand, while Microsoft has another $130 billion.

According to Michael Antonelli, managing director of Robert W Baird, the swings in markets are partially due to today’s “hyper-connected” environment. “Markets, data, sentiment, trade, podcasts, blogs: everyone has quick access to everything and can act on any feeling at the touch of a button.”

“Humans are irrational creatures; they aren’t going to take the time to think about their actions when they can push a button and silence the pain receptor in their brain,” he said, before adding, “Humans are irrational creatures; they aren’t going to take the time to think about their actions when they can push a button and quiet the pain receptor in their brain.”