So many top professionals in the financial industry are sounding the alarm about a coming stock market crash right now. And there certainly have been rumblings in 2018 – not too long ago we had a three day stretch that was called “the tech bloodbath”, and during that time Facebook had the worst day for a single company in stock market history. But we haven’t seen the really big “crash” yet. Many have been waiting for it to happen for several years, and some people out there are convinced that it is never going to come at all. Of course the truth is that we are in perhaps the largest stock market bubble that our nation has ever seen, and all other large stock market bubbles have always ended with a major price collapse. So whether it happens immediately or it takes a little while longer, it is inevitable that stock prices will eventually return to their long-term averages.
Thanks to crashing tech stocks, Americans have lost hundreds of billions of dollars in paper wealth over the past three trading days. As you will see below, we have just witnessed “the biggest market cap loss in history”, and many analysts believe that this is only just the beginning. At this point, even the mainstream media is fearing the worst. CNN is boldly proclaiming that “the tech bloodbath is here”, and there is a flood of mainstream articles giving advice to investors about how to ride out this crisis. But the amount of money that has already been lost is absolutely huge, and it isn’t going to take much to turn this panic into a full-blown stampede. In a lot of ways, what we are watching is very reminiscent of 2001. When the original tech bubble burst, the crash was so rapid and so dramatic that many ordinary investors were not able to react in time. As I have explained so many times before, markets tend to go down a whole lot faster than they go up, and the events of the last three trading days have been completely breathtaking.
Is this the beginning of the fall of Facebook? After announcing disappointing numbers for the second quarter on Wednesday, Facebook’s stock price plunged more than 20 percent in after-hours trading. If that decline holds on Thursday, it will be the biggest stock price drop in Facebook’s entire history. But the truth is that we will probably see the stock price bounce back a bit, because Wednesday’s crash was almost certainly an overreaction. Unlike many other tech companies, Facebook is still making lots of money, and the number of users globally is still growing. However, there are definitely some huge red flags. In the U.S. and Canada the number of users is stagnant, and in Europe the number of users is actually declining. Facebook’s user base is aging as many young people abandon the platform for trendier alternatives, and there is a growing backlash among conservatives against the tremendous censorship that we have seen in recent months. People are hungry for an alternative, and if something more appealing comes along Facebook could ultimately suffer the same fate as MySpace very rapidly.
S&P 500 tech stocks have now fallen for 9 days in a row. The last time tech stocks declined for so many days in a row was in 2012, and that was the only other time in history when we have seen such a long losing streak. As I have stated before, the post-election “Trump rally” is officially done, and the market is starting to roll over as investors begin to realize that all of the buying momentum has completely evaporated. Tech stocks tend to be particularly volatile, and so the fact that they are starting to lead the way down should definitely be alarming to many in the investing community.
Do you remember how much stocks went down when the first dot-com bubble burst? Well, it is happening again, and tech stocks are already down more than half a trillion dollars since the middle of 2015. On Friday, the tech-heavy Nasdaq dropped to its lowest level in more than 15 months, and it has now fallen more than 16 percent from the peak of the market. But of course some of the biggest names have fallen much more than that. Netflix is down 37 percent, Yahoo is down 39 percent, LinkedIn is down 60 percent, and Twitter is down more than 70 percent. If you go back through my previous articles, you will find that I specifically warned about Twitter again and again. Irrational financial bubbles like this always burst eventually, and many investors that got in at the very top are now losing extraordinary amounts of money.