High-priced tech stocks have been battered in 2022 but they’re not nearly as expensive as they were in 2021. Might a bottom be near for 2021’s bubbliest tech stocks?
Probably not, says Ray Dalio of Bridgewater, the world's biggest hedge fund.
In January, Dalio warned his proprietary bubble indicator suggested the US market was “on the edge of a bubble” and that emerging technology companies like Tesla were “clearly in an extreme bubble”.
The good news: Dalio’s index of bubble stocks is no longer in bubble territory. Bubble stocks have lost a third of their value over the last year, while the S&P 500 is flat. Prices have “meaningfully declined”, giving up most of their post-Covid gains.
Additionally, retail investing activity and leverage has returned to pre-Covid levels, while sentiment is bearish.
The bad news: bubbles take a long time to unwind and “typically go to the opposite extreme”, over-correcting to the downside before eventually settling at “normal” levels.
Emerging tech stocks are no longer “at a bubble extreme”, says Dalio, but that “doesn’t mean they are safe or that it’s a good time to get long”.
