People were sold into a bubble: the US stock market collapsed after the best rally in almost 100 years

People were sold into a bubble: the US stock market collapsed after the best rally in almost 100 years
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Soaring American stock market, which since the end of March grew by 55% in the S&P 500 index and 70% on Nasdaq, took a plunge into a “bloody” sellout in a matter of hours burning the capitalization equal to the GDP of the Netherlands.

After the fastest rebound from the bottom since 1938 and the best August in more than 30 years, stock indexes in the United States rolled down without visible reasons.

At the end of trading day on Thursday, the Dow Jones fell 2.78%, the S&P500 - 3.51%, and the Nasdaq-4.96%.

The VIX volatility index, known as the “fear indicator”, jumped 17% on the day and broke through the 30 point mark for the first time in almost two months, while capital flowed into safer assets pushing 10-year US government bond yields to 0.6% per annum.

The strongest sell-off since June put at least a temporary end to the rally, which some hedge fund managers call nothing but “surreal.”

As if repeating the scenario of the dot-com bubble in fast-forward mode, the capitalization of the seven largest technology companies - Facebook, Apple, Netflix, Google, Microsoft, Amazon, NVidia - soared 2-folds in 4 months and reached 8.4 trillion dollars. It is the amount equal to the GDP of Japan and Germany combined.

Tesla shares rose by 675% over that period of time, making the electric car manufacturer the most expensive car company on the planet, hence making its owner Elon Musk - the third richest man in the world with a fortune of more than 100 billion dollars.

Zoom Video shares have increased 5 times since the beginning of the pandemic, and by the beginning of September, the company, which has just over 2 thousand employees, was worth twice as much as the Russian giant gas monopoly Gazprom.

Since the beginning of the year, the Nasdaq has updated its historical highs 43 times, and the S&P 500-22 times, despite an unprecedented 31% drop in the US GDP in the quarter.

By early September, the five largest IT companies in the United States accounted for 22% of the stock market capitalization, which is higher than the record of the dotcom bubble of the late 1990s (18%).

The overheating of the technology sector has become “unhealthy”, and it is not surprising that it went into the correction. On Thursday, Apple shares fell 8%, Google - 4.91%, Microsoft - 6%, Amazon - 4.5%, Facebook - 3.76%. Together with Netflix and Nvidia, they lost a total of $ 400 billion in capitalization - an amount comparable to Norway's GDP.

Tesla shares fell 9%, increasing losses from the beginning of the week to 20% - a kind of watershed, which is considered to be the beginning of a “bear market.”

In pursuit of the rally of big tech names, too many people jumped on the bandwagon. Being left without a job and receiving help from the state, Americans threw that money into the stock market, which registered a record influx of day trader-amateurs, clicking on the screens of their smart phones with the Robinhood application.

Experts point out that new investors bought shares without thinking about the quality and without looking for any rational reason behind their buying decisions. A kind of mousetrap was formed: retail customers were sold a “bubble” after the market was warmed up by institutional hedge funds.

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