Sometimes, large stock gains are justified by the companies' performances.
Not every surge in stock prices is a sign of a bubble, however. When those expectations were not realized, nearly all of the tech stocks that had gained value during the boom years plunged or the underlying companies went out of business entirely. Tech stocks surged, fueled by high expectations for a new internet economy. The dot-com bubble of the late 1990s may be the most famous example of a stock market bubble. When investors talk about a stock market bubble, they are referring to stock prices being inflated the business fundamentals of the companies don't justify the gains. A company's valuation is determined by its business fundamentals: its profits, ability to grow even in recessionary environments, and other metrics core to the business itself. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.įollow economic terms, a stock market bubble is occurring when stock prices have increased significantly without any corresponding increases in the valuations of the underlying companies. I write about consumer goods, the big picture, and whatever else piques my interest.
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