That scream you heard? That’s what the tech slump led to the stock market slump: The overall market is down 18% this year, with tech stocks down about 30%.
That voice is also the “I told you” chorus of those who compared the bull market that investors have enjoyed over the years to the dot-com bubble of the late 1990s — who say things are going to get worse. During the dot-com bust that began in March 2000, tech stocks ended up falling nearly 80%.This collapse could affect everyone, even if they don’t work in tech and don’t bet on stocks (or rather, they don’t think they bet on stocks).
There are of course many similarities: just like the dot-com era, the stock boom started in 2009 and then became hyperscale during the pandemic, largely driven by extremely low to nonexistent interest rates, That makes investors more interested in companies that promise outsized returns.Just like in the internet age, we’ve seen a lot of companies promise products and results they can’t deliver, like Hydrogen powered truck.
But there is a significant difference between 2022 and 2000. The main point: unlike the internet age, many of today’s most valuable public tech companies are real companies—they make and sell things that people value, and often make money by doing so. So while Facebook, Google Shares of companies like Amazon and Amazon have fallen this year, but that doesn’t mean their businesses are disappearing — it’s just that investors no longer see their growth prospects as compelling as they once were.
It’s also worth pointing out that while the tech industry employs a lot of people — an estimated 5.8 million in 2021, According to the Computing Technology Industry Association — That’s only about 4% of total U.S. employment.
A wildcard in this comparison and contrast is the deflation of the cryptocurrency bubble, which is independent but closely related to the overall tech and stock bubble. On the one hand, the prices of bitcoin and other cryptocurrency-related currencies and products appear to be evaporating rapidly: last fall, one bitcoin was worth $67,000; now it’s worth about $28,000. On the other hand, if you bought Bitcoin in 2014, when it was priced around $700, you are still rich today.
The main question for cryptocurrency watchers is: is this a complete collapse, or is it one of many ups and downs the tech world has seen over the past decade?Others’ problem: If crypto does crash, it will only affect people who have bought or used Dogecoin, Boring Ape NFTs, or some other crypto — a group it purportsly represents 16% of Americans – or it could create a “infect“Will that destroy the global economy? If we knew, we would have told you.
In the meantime, here are three charts that lay out some of the reasons it feels a lot like 2000 now — and some of the reasons it doesn’t.
Although you’ve probably heard a lot about stocks and stock trading over the past few years – largely because Trading powered by mobile apps like Robinhood — Americans’ exposure to the stock market hasn’t increased significantly from what it used to be: About 58% of the country owns some kind of stock, either individually or through 401(k)s and other retirement accounts. It’s not too different from the bubble era, but it’s not a peak either.
In the dot-com bubble, if you wanted to invest in tech stocks, you had to look for tech stocks—and a lot of people did. But now, even if you don’t want to invest, you might invest in tech. That’s because many of the largest tech companies — like Google, Facebook, and Apple, collectively valued at over $4 trillion — It now forms an important part of the large stock indexes. That means relatively conservative investment vehicles, such as index funds run by Vanguard and Fidelity, have a slew of tech companies. So even if your only exposure to the stock market is through your 401(k) or IRA, you may be exposed to tech stocks.
One way to measure the relative risk of a stock is to measure its price-to-earnings (P/E) ratio – how much does a company’s stock cost compared to its profits? In the dot-com era, it was entirely possible to create a public company with little revenue and no profit at all, with a P/E ratio that exceeded expectations. Big tech companies routinely lose billions of dollars in profits these days, making ratios more conservative and stock prices supposed to be more durable.One important outlier: Tesla stock, which makes Elon Musk the world’s richest man, capable Acquires Twitter for $44 billion, still trading at 100 times earnings. If they came back to Earth, Musk would still be rich — but not as much.