Stock Market Bubbles generally appear when prices of specific goods highly exceed their value. The increasing prices fuel the speculation even further. At some point, the financial bubble breaks which leads to a significant price drop. Market bubbles don’t usually last too long. It is worth noting that the huge price increase is usually not justified by economic and financial factors. According to many economists, only psychological factors explain the surging prices (people think that if something is on the go the movement won’t stop anytime soon). One of the recent financial bubbles related to the IT sector- the so called dotcom bubble appeared in the 2000. It was enough for a company to have “.com” in its name and the price was instantly going through the roof, no one cared about fundaments or real profits of those companies. The bubble burst was just another lesson that investors should pay more attention in building their portfolios. The economic bubbles occur not only in the stocks markets but also in other parts of business activities e.g. real estate bubbles. In general, consequences of the economic bubbles are devastating and last very long. This often results in putting many countries into recessions. In order to prevent the formation of market bubbles, governments pursue the anti-cyclical policy.
Our tool shows long term trends, but you can also use it to spot trends that are way overextended and could be treated as potential market bubbles.