March 24, 2025
In this century’s first decade, investors had an opportunity to participate in and lose money due to two spectacular bubbles.
The first was the technology-driven dot-com bubble of the late 1990s that began bursting in the mid-2000s. The second was the housing bubble around 2008, where bad mortgages were combined into mortgage-backed securities that burned investors and the institutions that created those securities.
As a result, many people are looking for bubbles.
Today, I’m often asked whether there’s a bubble around the S&P 500 and the handful of stocks leading the index – the so-called “Magnificent 7,” which are Apple, Microsoft, Google, Amazon, NVIDIA, Meta, and Tesla.
The collective market capitalization of these companies represents 36% of the index’s total capitalization. That’s roughly double the rate from five years ago. Before the “Mag 7,” the highest share for the top seven stocks in the last 28 years was roughly 22% in 2000 – the height of the dot-com bubble.
At the end of November, U.S. stocks represented over 70% of the MSCI World Index, the highest percentage since 1970. Obviously, U.S. companies are worth a lot compared to other regions. What’s more, the top seven U.S. stocks are worth much more relative to the rest of the U.S. stocks.
But is this a bubble?
Bubbles have three stages.
The first happens after losses that leave most investors licking their wounds, when few bulls remain.
In the second stage, most people accept improvement is happening. You’ll see the economy, companies, and markets doing well.
The third stage keeps the party going “forever.” Economic news is great, companies’ earnings are soaring, and stocks have appreciated.
Then it unravels.
I’m not sure we’re in a bubble. I don’t see euphoria. When it’s there, it’s clear – everyone is a stock expert.