That scream you hear? It’s a stock market crash, led by a collapse in technology stocks: the overall market has fallen 18 percent this year, and technology stocks have fallen about 30 percent.
That sound is also a refrain “I told you so” from people who have compared the market to what investors have enjoyed for years with the dot-com bubble of the late 1990s – and who say things will get worse. In the collapse of dot-com that began in March 2000, stocks of technology eventually fell nearly 80 percent. It’s the kind of collapse that could affect everyone, even if they don’t work in technique and don’t bet on stocks (or, more accurately, don’t work think bets on stocks).
And there are certainly many parallels: like the dot-com era, the stock boom, which began in 2009 and was then large during the pandemic, was largely fueled by very low or non-existent interest rates, making investors more interested in companies who promised to deliver large returns. And like the dot-com era, we’ve seen a lot of companies promise products and results they can’t deliver, e.g. hydrogen trucks.
But there are significant differences between 2022 and 2000. The main thing: unlike the dot-com era, many of the most valuable public technology companies today are real companies – they make and sell things that people value and usually make a profit by working on it. So while companies like Facebook, Google and Amazon have seen their shares fall this year, that doesn’t mean their companies are disappearing – just that investors no longer think their growth prospects are as plausible as they once were.
It is also worth noting that, although the technology industry employs many people – an estimated 5.8 million in 2021. according to the Computer Technology Industry Association – This represents only about 4 percent of the total number of employees in the United States.
One wildcard in this comparison and contrast is the deflation of the crypto bubble, which is separate but largely related to overall technology and the stock market bubble. On the one hand, the price of bitcoin and other currencies and cryptocurrency-related products seems to be disappearing very quickly: last fall, one bitcoin was worth $ 67,000; now worth about $ 28,000. On the other hand, if you bought bitcoin in 2014, when it cost about $ 700, you’re still fine today.
Key questions for cryptocurrency observers: Is this a complete collapse or one of the many momentum the technology world has seen in the last decade? Question for everyone else: if the crypto fails, will it only affect people who bought or used dogecoin, Bored Ape NFT or some other type of cryptocurrency – a group that allegedly represents 16 percent of Americans – or can create “infection“Which could destroy the global economy?” If we knew, we would tell you.
In the meantime, here are three charts showing some of the reasons it currently feels like 2000 – and some of the reasons why it hasn’t.
Although you may have heard a lot about stocks and stock trading in the last few years – largely because of the explosion trading fueled by mobile apps like Robinhood – Americans are not significantly more exposed to the stock market than they were in the past: about 58 percent of the country owns some type of stock, whether individual stocks or packages through 401 (k) s and other retirement accounts. This is not significantly different from the bubble era, but it is also not the highlight.
In the dot-com era, if you wanted to invest in technology stocks, you had to find technology stocks – and many people did. But now you’re probably investing in technology, even if you don’t want to. This is because many of the largest technology companies – such as Google, Facebook and Apple, with a combined market capitalization of more than $ 4 trillion – they now form significant parts of large stock market indices. Which means that relatively conservative investment funds, such as index funds run by Vanguard and Fidelity, own large parts of technology companies. So even if your only stock market exposure is through your 401 (k) or IRA, you are probably exposed to technology stocks.
One way to measure a stock’s relative risk is to measure its price-to-earnings ratio (P / E) – how much does a company’s stock cost compared to its profit? In the dot-com era, when it was entirely possible to create a public company with low revenues and no profits, P / E ratios were out of scale. Today, large technology companies routinely throw billions in profits, making much more conservative ratios and stock prices that should be more sustainable. One important difference: Tesla’s shares, which made Elona Mask the richest man in the world, with the ability to fund a $ 44 billion bid for Twitterthey still trade at a P / E ratio of 100. If they return to earth, Musk will still be rich – but not nearly as much.