Are We in a Bubble Pt. 2
By Daniel McGarvey
One of the most popular articles on our blog over the past few months has been “Are We in a Bubble?,” and little wonder. With all the highs and lows in the stock market over the past year, many people are wondering the same thing.
We were thrilled to have the opportunity recently to address this question, and many others, on Outside the Box, a podcast supporting Central PA small businesses. Stonebridge Financial Group Directors Brian McCarver and Jonathan Freeman appeared with host Derek Bicksler to discuss asset bubbles and appropriate responses for small businesses to current market conditions.
During a wide-ranging conversation filled with laughs, Jon and Brian simplified concepts for listeners without a financial background who want to understand more about the market. Here are five important takeaways from the conversation (which you can listen to here!).
1. The definition of a bubble is…: They began with an overview of the bubble, walking through the stages bubbles often follow.
2. We may be in a state of euphoria: Jon and Brian concluded we could currently be in the stage of “euphoria” as the media and average investors buy into positive trends. The stage could continue for a while as the economy produces good numbers, the government backs up the system with stimulus, and the Fed effectively encourages investors to take on risk by keep interest rates low.
3. There are risks involved with the government propping up the markets: Jon and Brian pointed out concerns about rising rates and inflationary pressures, especially if the government finds itself unable to continue down this path of easy monetary policy. Additionally, the government’s unwillingness to allow a recession may be propping up the existence of “phantom” companies that more typical economic cycles would otherwise weed out.
4. Small businesses may want to ignore the big headlines: Small businesses may benefit from focusing on the financial situations in their specific markets and not get too caught up in the big headlines that contribute to the sense of “euphoria.” They should prepare for the potential of a hotter economy in the second half of the year, which could also bring increased inflation.
5. Individuals probably shouldn’t chase trends: Just like small businesses, individual investors should also assess their financial goals and risk tolerances, adopting long-term strategies that do not focus on chasing trends or following emotional headlines. The fear of missing out on significant returns should not cause anyone to increase risk beyond their comfort zone. Jon mentioned keeping cash on hand in times like these to wait for opportunities to redeploy assets.
To learn what Brian and Jon said about ways businesses can care for their employees financially and for a more in-depth look at all these topics, be sure to watch or listen to Jon and Brian’s discussion with Derek on Outside the Box.