That screaming sound you hear? That’s the stock market tumbling, led by a collapse in tech stocks: The overall market is down 18 percent this year, and tech shares are down about 30 percent.
That sound is also a chorus of “I told you so” from people who’ve been comparing the bull market investors have enjoyed for many years to the dot-com bubble of the late 1990s — and who say things are going to get worse. In the dot-com bust that kicked off in March 2000, tech stocks eventually dropped nearly 80 percent. That’s the kind of collapse that could affect everyone, even if they don’t work in tech and don’t bet on stocks (or, more accurately, they don’t think they bet on stocks).
And there are certainly lots of parallels: Like the dot-com era, the stock boom, which began in 2009 and then super-sized during the pandemic, has been fueled in large part by very low to nonexistent interest rates, which made investors more interested in companies that promised to deliver outsized returns. And like the dot-com era, we’ve seen plenty of companies promise products and results they can’t deliver, like hydrogen-powered trucks.
But there are significant differences between 2022 and 2000. The main one: Unlike the dot-com era, many of the most valuable publicly traded tech companies today are actual companies — they make and sell things people value, and usually make a profit doing so. So while companies like Facebook, Google, and Amazon have all seen their shares tumble this year, it doesn’t mean their businesses are disappearing — just that investors no longer think their growth prospects are as compelling as they once were.
It’s also worth pointing out that while the tech industry employs a lot of people — an estimated 5.8 million in 2021, according to the Computing Technology Industry Association — that represents only about 4 percent of total US employment.
One wild card in this compare-and-contrast is the deflation of the crypto bubble, which is separate but very much related to the overall tech and stock bubble. On the one hand, the price of bitcoin and other crypto-related currencies and products seems to be evaporating very quickly: Last fall, a single bitcoin was worth $67,000; now it’s worth around $28,000. On the other hand, if you bought a bitcoin back in 2014, when it cost around $700, you’re still well off today.
The main questions for crypto-watchers: Is this a complete collapse or one of the many up-and-down swings the tech world has seen for the last decade? The question for everyone else: If crypto does collapse, will that only affect people who’ve bought or used dogecoin, Bored Ape NFTs, or some other kind of crypto — a group that supposedly represents 16 percent of Americans — or could it create a “contagion” that could wreck the global economy? If we knew, we’d tell you.
In the meantime, here are three charts that lay out some of the reasons it feels a lot like 2000 right now — and some of the reasons it doesn’t.
Even though you may have heard a lot about stocks and stock trading in the last couple of years — in large part because of the explosion of trading egged on by mobile apps like Robinhood — Americans aren’t significantly more exposed to the stock market than they’ve been in the past: About 58 percent of the country owns some kind of shares, whether they are individual stocks or bundles of them via 401(k)s and other retirement accounts. That’s not significantly different from the bubble era, but it’s also not a peak.
In the dot-com era, if you wanted to invest in a tech stock, you had to go find a tech stock — and lots of people did. But now you’re likely invested in tech even if you don’t want to be. That’s because many of the biggest tech companies — like Google, Facebook, and Apple, with a combined market cap of more than $4 trillion — now make up significant chunks of the big stock indexes. Which means that relatively conservative investment vehicles, such as index funds run by Vanguard and Fidelity, own big chunks of tech companies. So even if your only exposure to the stock market is via your 401(k) or IRA, you’re probably exposed to tech stocks.
One way to measure the relative riskiness of a stock is by measuring its ratio of price to earnings (P/E) — how much does a share of a company cost compared to its profit? In the dot-com era, when it was entirely possible to create a public company with little revenue and no profit at all, P/E ratios were off the charts. Today, big tech companies routinely throw off billions in profit, which makes for much more conservative ratios, and stock prices that should be more durable. One important outlier: Tesla shares, which have made Elon Musk the richest man in the world, with the ability to finance a $44 billion bid for Twitter, still trade at a nosebleed P/E ratio of 100. If they come back to earth, Musk will still be rich — but not nearly as much.
