With most of the gains in the market coming from seven stocks: Apple, Microsoft Meta, Alphabet, Amazon, Tesla, and Nvidia; the question is, are these stocks building a tech stock bubble, and if so, when will the bubble burst?
I think it is too late to chase these seven or eight stocks; we do not know yet if they have created a tech stock bubble. In the past, it has not been possible to identify the bubble until after it pops. So While the bubble may have already formed, we will have to wait till the market breaks to understand the magnitude of any damage to the tech stock bubble.
The market now seems convinced that ChatGPT can continue to carry stocks upward, but I am afraid there is a conflict between the market optimism and the Fed’s effort to control inflation. While one of the primary rules of investing has always been don’t fight the FED, yet it seems to me that that is exactly what the market is currently doing.
It is, of course, possible that inflation will continue to decline, so there will be no tech stock bubble to pop. The hope is that the market bottom set in October will hold. Still, for that to happen, the FED will have to back off any further rate increases, and it will not be able to do that if the economy remains strong as the market seems to think it will.
So the question is, is there a tech stock bubble, and how long will we have to wait to find out? Who do we believe? The market or the FED? Because of this uncertainty, we feel that now is a time to build our cash position and wait for better prices. While ChatGPT will surely provide profitable investment opportunities in the future, it seems too early to understand the eventual impact. It will be better to wait until the tech stock bubble pops to try to pick winners.