Stock market recovery: have all the bubbles now burst?

Not only is a stock market recovery imminent, I think it’s already happening.

It’s messy, of course. Not all share prices are rising. Some are even falling. But that’s likely just the process of a bottoming market working through. So, I’m buying selective stocks now to hold for the long term. But only when I see good value and decent growth prospects ahead for a business. And when some recent good news about trading is in the bag.

But what about those many asset bubbles we’ve seen? Have they now all burst or does risk remain? And is it wise to wait until they have all deflated before investing in stocks and shares?

For me, the most important assets to think about are stocks and shares themselves. And more specifically, the individual companies in which I may wish to invest. So, my focus is on the news flowing from businesses and the current valuations being offered by the stock market.

There’s always a bubble somewhere

However, asset bubbles sometimes do have the potential to derail stock market investments. A good example of that was the subprime mortgage bubble of the noughties that led to the credit-crunch crash in share prices.

But there always seems to be a bubble somewhere. Speculation and human nature have delivered numerous examples over the centuries. For example, in recent times we’ve seen bubbles in assets such as cryptocurrencies and meme stocks. And we could be living through a bubble in commodity prices right now.

I think it’s unrealistic to wait for every bubble to burst. There’s always a bubble in something somewhere and therefore something to fret about. But that won’t stop the stock market from climbing its usual wall of worry. 

And why shouldn’t it recover now? Many businesses have been trading well and there have been many recent positive company updates. Yet lots of company valuations still appear to be depressed. And many share prices remain close to their recent lows.

A robust business indicator

One of the most robust-looking indicators of business strength is the way so many firms are buying back their own shares. Companies tend to do that when they have spare cash beyond what they need to reinvest into their businesses. In theory, it helps shareholder returns by reducing the share count outstanding. So, the remaining shares are worth more to investors because they attract a bigger share of the company’s future dividends. 

There could be bubbles in asset prices still around and the immediate economic road looks a little bumpy. But I have great faith in the ability of many businesses to adapt to changing conditions. We saw a lot of that through the pandemic. And we are seeing it now with the price inflation crisis.

Therefore, for me, it’s a good time to shop for the stocks of strong and enduring enterprises right now. And my goal is to hold onto shares for the long term as operational progress unfolds in each underlying business. Meanwhile, the inevitable sound of bubbles inflating, deflating and bursting won’t put me off!