Categories: Market Overview

These 3 Warnings Suggest the Tech Bubble Is About to Burst

Sign 1: Tech Stocks’ S&P 500 Weightage Mirrors 1999 Bubble
So far, the tech bulls have partied like its 1999. As a result, the S&P 500’s technology sector weighing has reached record levels. At the peak of the dot-com bubble, tech stocks made up 35% of the index. Now, technology stocks weigh 37%. Are tech stocks today heading for a similar fate as they did in 1999?

Sign 2: Tech Stocks Outperform U.S. Banks
U.S. banks have started reporting dire Q2 2020 earnings already. Historically, tech stocks’ outperformance over U.S. banks has led to terrible consequences. The last time tech stocks outperformed U.S. banks; the world went into the great recession. Before that, it was the tech bubble that burst and rendered millions broke.

Sign 3: Widely-Followed BofA Strategist Sounds Alarm
Two weeks ago, Bank of America’s Chief Investment Strategist Michael Hartnett said: If tighter monetary conditions are to pop the tech bubble, we think it would happen in China first. If his thesis is correct, there’s reason to worry, as tech stocks have already rallied to new highs in China.

The U.S. government’s stimulus program is due to expire at the end of the month, so a new round of money printing would be needed to keep the market pumping. U.S. government’s helicopter money was pulled out of thin air, with the Federal Reserve being the biggest buyer of the debt.

While some used the stimulus checks to survive, many decided to gamble in the stock market. This inflated the overall market bubble along with the tech bubble, as retail traders flooded the market. Excessive money printing inflates the stock market, causing significant distortions with the real economy.

It looks like another round could be beginning, and this could end up inflating the tech bubble further. At the same time, the pandemic continues to worsen in many states, forcing businesses to close down once again. The question remains, how long can the Fed continue to print money before inflation fears force them to raise interest rates once again? Only time will tell.

These 3 Warnings Suggest the Tech Bubble Is About to Burst, CCN, Jul 20

The FxPro News Team

This team of professional journalists announces the most interesting and influential articles from the major financial media as a brief summary. All such news may have sufficient potential to affect the course of trading assets.

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