It seems like the stock market is hitting all-time highs just about every week in 2021. While stocks have shown a serious bounce since the pandemic's start, this resilience is giving some investors pause. Could we be in a stock market bubble? Here are five signs to look for to judge whether we are in bubble-market territory and what we will likely see if we are there.
1. A story has captured the market's imagination
The dot-com bubble of the late 1990s had one: "The internet changes everything." The benefits of the internet eventually arrived, but not before effectively destroying hundreds of dot-com companies that had poor business models.
Where we see it today: There's not one widespread story that has captured the imagination the way that dot-com stocks did, but a few sectors are bubblicious: electric vehicles, self-driving cars, software-as-a-service (SaaS) companies, Uber and cryptocurrency all have similar story elements that promise radical transformation and charge a very high price of admission.
2. Prices rise regardless of news
The story is important because it offers a theme to build investors' hopes and dreams on. In a bubble, it's as if every bit of information verifies the story, so stock prices rise regardless of the news.
Where we see it today: Look at individual sectors or companies and you will see them rising to high valuations despite mediocre or poor news. For example, in December Tesla's valuation was more than the next nine carmakers together, despite being barely profitable and facing increasing competition.
3. Other asset prices are soaring, too
