I avoided stocks during the tech bubble of 1999 since it didn’t make sense for the index to increase by 25% when the economy was growing by 3%. This was clearly a bubble and I bought back in 2002 after the bubble popped. I have met people who were financially wiped out by their bubble stock investments.
The same type of tech-driven bubble has formed in 2023-2025, driven by massive Covid-driven monetary and fiscal stimulus money. As a risk-averse investor, I avoided this bubble. I bought a ladder of bonds while their yields are at multi-decade highs. As these ladder rungs mature I have to decide whether to roll them into other bonds or buy stocks.
Is it time to buy stocks yet?
How to Tell if the Market Selloff Has Hit Bottom
It doesn’t quite feel like it’s time to buy just yet. But here are three tests to help you decide.
By James Mackintosh, The Wall Street Journal, March 14, 2025
[big snip]…
It doesn’t quite feel like it’s time to buy just yet. But here are three tests to help you decide:
Sentiment has already turned sour among private investors…Among institutional investors, however, there’s not enough sign of panic to make me want to go back in… I like to buy when fear drives stocks too low, but this is not that moment…
Leverage adds to the overshoots, as hedge funds and day traders borrow to buy stock, or have to sell to pay back their borrowing. At major market lows, leveraged traders are forced to close trades to repay debt. This accelerates the drop—and helps find the bottom…The small fall in leverage alone isn’t enough to make me think that a rebound in stocks popular with hedge funds, such as Big Tech, is imminent…
Overshooting fundamentals is another sign we’ve hit a major low… [end quote]
The Cyclically Adjusted PE Ratio (CAPE Ratio) is a fundamental that shows that the SPX is in a historic bubble. The tiny retreat from the current small correction has hardly made a dent.
This historical chart shows what happened to the stock market after the comparable bubbles burst in 1929 and 2000. (2009 and 2020 aren’t comparable because they weren’t stock market bubbles.) The bottom took 2 years of losses.
Debit Balances in Customers’ Securities Margin Accounts were at a record high in January 2025. The SPX is far from a bottom.
We are far from the point where I would feel comfortable buying stocks.
Wendy