25 years of the maximums that the S&P 500 touched in the bubble have been completed Puntocom. On March 24 of the year 2000, the S&P 500 closed the session in the 1,527.35 points and, still without knowing it, This level marked the roof that was touched just before one of the biggest bubbles in history broke out: The technology of the beginning of the century. The end of this investment fever in everything that any relationship with the Internet left several lessons for investors and remembers the speed to which a speculative bubble can exploit. Now, at a time when many investors are trying to take advantage of the birth of a new digital trend, that of artificial intelligence, the differences with the outbreak of the bubble of the beginning of the century are notable, although there may be certain similarities.
Bubble formation Puntocom It lasted during the last years of the twentieth century. The arrival of the Internet generated a fever for the actions of companies that had any relationship with this ‘new’ technology, which promised to revolutionize the world as it was known. In this sense, the Internet fulfilled, since its adoption has changed the world completely. However, along the way, the burst of the bubble Puntocom It was one of the most traumatic stock event that is remembered.
In the five years prior to the burst of the bubble, between August 1995 and March of the year 2000, the S&P 500 almost tripled its price. In these years, many American quoted saw an opportunity in the arrival of the Internet and, taking advantage of a context in which everything seemed aligned for investment in this new trend, they launched clients with the claim with the claim Puntocom. At that time many investment banks promoted the entry of capital into technology, and the Federal Reserve maintained attractive interest rates for investment.
The burst of the bubble
After several years of excessive profits in the financial markets (profits that were inflating the snowball as more and more investors went to the market encouraged by the benefits that were being achieved), In the months prior to March 24 of the year 2000 some danger signs began to appear.
One of the most important was the rise in types of the Federal Reserve. In June 1999, with the types of 4.75%, the Fed began a process of increase in the price of money that ended with the type of reference at 6.5%, in May of the year 2000. In the midst of this rise in types the fear of many investors began to arise due to the damage that it could mean for companies, and more for those who had assumed debts over their possibilities. This was not unusual, in a period in which many companies chose a strategy of “growing at all costs”, spending exorbitant amounts in marketing, such as Superbowl ads, to try to gain market share.
Little by little they began to emerge Red flags which led to the burst of the bubble. In addition to the increase in interest rates of the Fed, on March 13, 2000 it was known that Japan had re -entered technical recession. The Japanese country had suffered a recession in the two years prior to the new millennium and Its relapse began to make many investors nervous about the fear that a brake of the world economy could occur. The first stones of the return to the reality of the markets were already placed.
On March 20, the magazine Barron’s published an article that warned how many companies related to internet were in serious danger of bankruptcy. That same day, Microstrategy, the company that today is known again for its risky strategy of buying Bitcoins, publicly recognized that he had to rebuild his accounts, for irregularities, and the firm’s actions sank more than 60% in a single day.
The next day, March 21, the Federal Reserve carried out one of the increases in interest rates of that cycle, but this time the increase in the price of money had a particularly worrying consequence: the interest curve of the US debt was invested, a sign that, throughout history, has been an omen that an economic recession was coming. The reality was that the market began to see worrying signs, and investors in fixed income began to discount short -term drops from the US central bank.
If the Nasdaq had already touched the roof, on March 10, 2000, the S&P 500 still had a few days of climbing, until they reached their own on March 24. During these 14 days, part of the money that came out of technological actions fell to more traditional firms, which contributed to the S&P enduring a few more days before the bubble explodes.
Already in April, the outbreak seemed to be done: a sentence against Microsoft by monopolistic position generated a 15% drop in the firm’s actions, coinciding with the Bloomberg publication of several articles that warned of overvaluations, such as the one signed by Catherine L YAP-Yang on April 3, 2000, entitled: “Earth calling accountants Puntocom“ The end of the bubble was served.
Differences with the current situation
There are investors who can be concerned about the apparent similarities between the bubble Puntocom and the current situation of financial markets. The increases of the great technological firms have been dizzying in recent years, and has led to a context in which, as seen in recent weeks, the nervousness of the markets has generated rapid falls from the American stock exchange as soon as some signals of doubts about economic growth have appeared.
However, there are some market data that make it clear that the current situation presents notable differences that were lived a quarter of a century ago. First, the formation of the bubble was much more abrupt in 2000 than the increases that have been seen in the stock market in recent years. The most important difference, yes, is very evident: the benefits.
The current great technological technology, known as the Magnificent seven, have not received this name for no reason: these firms are among the most profitable in the world, with enviable financial stability, if their indebtedness and the forecast of benefits that analysts maintain. In 2000, on the contrary, the technology market was full of companies that had not even benefits, and everything was based on the promise that the Internet would position them as great winners in the future. It was the case, in a few, such as Amazon.com or Microsoft, but not in the vast majority of companies that were in this situation.
According to the calculations of Bloombergthe Nasdaq technological index quoted in 1999 to 90 times its benefit, an assessment that contrasts with which is now paid, from 35 times for the selective. Although an overvaluation can be considered, and it is a ratio superior to the historical average, the difference with the previous moment at the end of the bubble of the beginning of the century is more than evident.
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