Bubble Chatter Rises but No Sign of Slowing Yet

The big question swimming around every market pundit’s head right now is whether we are in an equity market bubble, and whether that bubble is going to burst and send stocks collapsing the way they did in 2008-2009, in 2000 and in 1987.

From high-profile bond fund managers to doom-and-gloom prophets to Nobel Prize winners, the banter is all about bubbles. Now, I can certainly understand this fascination, as the bursting of a market bubble can be extremely hazardous to your wealth, especially if you insist on investing the way the Wall Street marketing machine wants you to, and that is to buy-and-hold and sweat it out through any market action.

I think the question of bubbles is logical given the fact that the S&P 500 has vaulted some 26% year to date. In fact, the broad measure of the domestic market is on pace to have its best year since 2003. When things get this bullish, we all start to worry about how long the good times will last.

The chart here of the S&P 500 Index during the past 12 months shows just how strong this market has been. It also shows the complete lack of any substantive pullback over the year. And, aside from modest June, August and September dips, this market has kept up its relentless move to the upside.

Now, while the move higher in U.S. stocks continues, things have been different in the emerging markets. The chart here of the iShares MSCI Emerging Markets (EEM) shows the volatility in this market segment. This chart demonstrates the recent breakdown in emerging markets. That breakdown could be the first sign of a selling trigger in U.S. stocks.

However, until we see a significant breakdown in the price of major averages such as the S&P 500, the Dow and the Russell 2000 Index, the market likely will ignore bubble worries and keep chasing the outstanding 2013 performance.

If you want to read about bubbles in much greater detail, and about how to protect your money from the next busted bubble, then I invite you to check out my Successful Investing newsletter today. In our upcoming January issue, we tackle the bubble question and see what’s at the heart of the worries. We also show you how to recognize a bubble before it bursts, and how to protect your serious money from the fallout.