Everything Bubble: When Every Asset Rose at Once

Key Takeaways

• The everything bubble is a media label for many assets rising together on cheap money from 2020 to 2022.
• Near-zero rates, roughly $4.6 trillion in US relief, and Fed bond buying drove the run-up.
• US home prices rose 18.8% in 2021, the largest calendar-year gain in the index's 34-year history.
• In 2022 the S&P 500 fell about 19.4% and bonds had their worst year in decades.

Background

The term "everything bubble" is not an official designation. It is a popular and media framing, used by writers and analysts to argue that during the pandemic era almost every major asset class looked expensive at the same time. Investors and commentators still debate whether it deserved the name, since several of these assets did not crash to zero, and a "bubble" is only ever certain in hindsight. What is not in dispute is the unusual synchrony of the run-up and the reversal.

The setup was a policy response to a real emergency. When COVID-19 hit in March 2020, markets seized and the economy shut down. The Federal Reserve cut its policy rate to a target range near zero and restarted large-scale asset purchases, a practice known as quantitative easing or QE. Through QE the Fed bought Treasury securities and government-backed mortgage bonds, pushing cash into the financial system and holding down interest rates across the board.

Congress added an enormous fiscal push. The U.S. Government Accountability Office reports that six relief laws enacted in 2020 and 2021 provided about $4.6 trillion of pandemic funding, including stimulus checks, expanded unemployment benefits, and small-business loans. Some of that money reached households that, stuck at home, put it into markets.

The result was the cheapest money in modern history sitting alongside cash-rich savers looking for returns. When safe assets pay almost nothing, investors reach for riskier ones, a behavior often called the search for yield. That reach is the common thread running through every part of the everything bubble.

What Happened

The run-up and the reversal both moved across asset classes at once, which is what set this episode apart from a single-sector mania.

• March 2020: The Fed cuts rates to near zero and restarts QE; the S&P 500 closes at a pandemic low of 2,237 on March 23.
• 2020-2021: The Fed's balance sheet roughly doubles from about $4.3 trillion to nearly $9 trillion through bond purchases.
• 2021: US home prices, equities, crypto, SPACs, and meme stocks all post large gains within the same year.
• November 2021: The total cryptocurrency market tops about $3 trillion, the peak of the crypto leg.
• December 2021: The S&P CoreLogic Case-Shiller national index records an 18.8% gain for calendar 2021.
• January 3, 2022: The S&P 500 sets a record closing high of 4,796.56.
• March 16, 2022: The Fed raises rates for the first time in the cycle, to a range of 0.25% to 0.50%.
• Through 2022: The Fed hikes by a total of 425 basis points; stocks, bonds, housing momentum, and crypto fall together.
• December 30, 2022: The S&P 500 ends the year at 3,839.50, down about 19.4%, its worst year since 2008.

Equities led the visible climb. From the March 23, 2020 closing low of 2,237 to the January 3, 2022 record of 4,796.56, the S&P 500 more than doubled in under two years. Housing ran almost as hot, with the Case-Shiller national index posting an 18.8% gain for 2021, well above 2020's 10.4% rise. Bonds rallied too, in the sense that yields fell to historic lows, which lifts bond prices: the 10-year Treasury yield dropped to record lows around 0.5% in 2020. Crypto, special-purpose acquisition companies, meme stocks, and unprofitable growth firms all surged on the same wave.

The reversal began once inflation forced the Fed's hand. After its first hike on March 16, 2022, the Fed raised rates at the fastest pace in roughly four decades, and the assets that had risen on cheap money repriced lower across the board.

Why It Happened

The everything bubble had a single root cause with several channels, which is exactly why so many assets moved together.

The root cause was the price of money. When the central bank holds short-term rates near zero and buys trillions in bonds, it lowers the discount rate that investors use to value every future cash flow. A lower discount rate raises the present value of distant earnings, which inflates the price of long-duration assets most of all: growth stocks, real estate, and any speculative bet whose payoff lies far in the future. The same force lifts bond prices, because existing bonds with higher coupons become more valuable as new yields fall.

The first channel was the search for yield. With cash and safe bonds paying almost nothing, large pools of money moved into riskier assets to earn a return. The IMF warned about this in its April 2021 Global Financial Stability Report, subtitled "Preempting a Legacy of Vulnerabilities," noting that a prolonged period of easy financial conditions had left asset valuations stretched in some segments and created the risk of a sharp repricing if conditions tightened.

The second channel was fiscal stimulus meeting closed spending options. Households received direct payments and enhanced benefits at a time when travel, dining, and many services were shut. A share of that cash flowed into brokerage and crypto accounts, adding new buyers to already rising markets.

The third channel was reflexivity and narrative. Each rising market produced its own story to justify the price, from "stocks always come back" to "housing never falls" to "this technology changes everything." Those stories pulled in more buyers, which validated the rise, which strengthened the story. The same loop that lifted prices on the way up reversed on the way down.

The fourth channel was correlation, which is the part most investors underestimated. Because one factor, the cost of money, was driving all of these assets, they were far more correlated than they looked. Diversifying across stocks, bonds, real estate, and crypto felt prudent, but when the common driver flipped in 2022, the supposedly different assets fell at once.

By the Numbers

• US relief funding: about $4.6 trillion from six relief laws enacted in 2020 and 2021. (U.S. GAO)
• Fed balance sheet: roughly $4.3 trillion before the pandemic to nearly $8.9 trillion by May 2022, more than doubling. (Brookings)
• Policy rate: held near zero from March 2020 until the first hike to 0.25%-0.50% on March 16, 2022. (Federal Reserve)
• 2022 rate hikes: a total increase of 425 basis points across the year, the fastest pace in roughly four decades. (Federal Reserve; contemporaneous reporting)
• S&P 500 climb: from a closing low of 2,237 on March 23, 2020 to a record 4,796.56 on January 3, 2022, more than doubling. (Yahoo Finance/Reuters; CNN Business)
• US home prices: up 18.8% for calendar 2021, the largest annual gain in the index's 34-year history, versus 10.4% in 2020. (S&P Dow Jones Indices)
• 10-year Treasury yield: fell to record lows around 0.5% in 2020. (contemporaneous reporting; FRED data)
• S&P 500 in 2022: down about 19.4%, its worst year since the 38% drop in 2008. (Yahoo Finance/Reuters)
• Bonds in 2022: the Bloomberg US Aggregate fell sharply, and 2022 was one of the few calendar years in which both stocks and bonds dropped together, alongside 1931 and 1969. (Callan)
• Crypto leg: the total cryptocurrency market topped about $3 trillion in November 2021 before collapsing in 2022. (see the crypto case study)

Aftermath

The 2022 reversal hit nearly every asset that had risen, which is why the episode is remembered as a synchronized boom and bust rather than a single crash. The S&P 500 fell about 19.4% on the year and finished December 30, 2022 back near its early-2021 level. The Nasdaq Composite, heavy with growth and tech, fell about 33%.

Bonds offered no shelter, which is the part that stung diversified investors most. Callan notes that 2022 was one of only a handful of calendar years in which both stocks and bonds declined, joining 1931 and 1969, and that the four-month bond drawdown early in the year was the worst on record for the US Aggregate index. The classic 60/40 portfolio of stocks and bonds had its worst year in decades because both legs fell at once.

The most speculative corners fell hardest. The total crypto market dropped from about $3 trillion in November 2021 to a fraction of that through 2022. Unprofitable technology stocks, the SPAC boom, and the meme-stock surge all unwound, each with its own collapse story. Those specific manias are covered in the sibling case studies linked below. Housing cooled as mortgage rates jumped, though national home prices fell far less than equities or crypto and did not return to a 2008-style decline.

The policy response shifted from stimulus to restraint. The Fed kept raising rates through 2022 and began shrinking its balance sheet, a process called quantitative tightening. The debate over whether the whole period was truly a single "everything bubble" continued, since the label was always informal and some assets held up better than others.

Lessons for Investors

1. One driver can link assets that look unrelated. Stocks, housing, bonds, and crypto all rose largely because money was cheap, which made them far more correlated than a diversified investor assumed. When the cost of money flipped in 2022, they fell together. Before relying on diversification, ask whether your holdings share a hidden common driver.

2. Cheap money flatters valuations, and the effect reverses. A near-zero discount rate raises the value of distant cash flows, inflating long-duration assets such as growth stocks and real estate the most. The same math works in reverse when rates rise. Treat unusually low rates as a tailwind that can become a headwind, not as a permanent feature.

3. The riskiest assets move the most in both directions. Crypto, SPACs, meme stocks, and unprofitable tech led the climb and then led the fall. Outsized gains in the most speculative assets are a sign of how much liquidity is sloshing around, not proof that the gains are durable. Size those positions for the drawdown, not the rally.

4. Bonds are not always a hedge. Investors who held bonds expecting them to cushion a stock decline were hurt in 2022, because rising rates pushed both lower at the same time. A hedge only works if it is driven by a different factor than the thing it is hedging. When inflation and rates dominate, stocks and bonds can fall in tandem.

5. A label is a debate, not a verdict. "Everything bubble" was a popular framing, not an official finding, and reasonable people disagreed about how much of it was a true bubble. Use such labels as a prompt to check valuations and your own exposure, not as a market-timing signal. The useful question is not whether to call it a bubble, but whether you are paid for the risk you are taking.

Frequently Asked Questions

What was the everything bubble in simple terms? The everything bubble is a popular label for the period from 2020 to 2022 when US stocks, housing, bonds, crypto, and speculative startups all rose together on cheap money. Many of those assets then fell together in 2022 when interest rates rose.

Why did the everything bubble happen? Near-zero interest rates, record central-bank bond buying, and about $4.6 trillion in US pandemic relief made money extremely cheap and pushed investors into riskier assets to earn a return. Because one factor, the cost of money, drove so many markets, they rose together and were far more correlated than they looked.

How much money was lost in the everything bubble? There is no single total, because the losses spanned many markets. The S&P 500 fell about 19.4% in 2022, its worst year since 2008, bonds had one of their worst years on record, and the crypto market dropped from roughly $3 trillion to a fraction of that.

Could the everything bubble happen again today? A broad, cheap-money run-up can recur whenever rates are held very low for a long time, since the search for yield and reflexive pricing are constant features of markets. What changes is the policy backdrop, and after 2022 central banks were more focused on inflation than on holding rates near zero.

What is the main lesson from the everything bubble? The single most transferable takeaway is that assets which look diversified can share a hidden common driver, in this case the cost of money. When that driver reverses, supposedly different holdings can fall together, so check what really moves your portfolio.

Sources

1. International Monetary Fund. Global Financial Stability Report, April 2021: Preempting a Legacy of Vulnerabilities. https://www.imf.org/en/publications/gfsr/issues/2021/04/06/global-financial-stability-report-april-2021
2. Board of Governors of the Federal Reserve System. Federal Reserve issues FOMC statement, March 16, 2022. https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a.htm
3. U.S. Government Accountability Office. COVID-19 Relief: Funding and Spending as of Jan. 31, 2023, GAO-23-106647. https://www.gao.gov/products/gao-23-106647
4. Brookings Institution. Shrinking the Federal Reserve balance sheet. https://www.brookings.edu/articles/shrinking-the-federal-reserve-balance-sheet/
5. Callan. Stock and Bond Declines at the Same Time in 2022: What It Means. https://www.callan.com/blog/stock-and-bond-declines/
6. Yahoo Finance / Reuters. S&P 500 falls 19.4% in 2022, worst year since 2008 financial crisis. https://finance.yahoo.com/news/stock-market-live-news-updates-december-30-2022-113654551.html
7. S&P Dow Jones Indices. S&P CoreLogic Case-Shiller Index Reports 18.8% Annual Home Price Gain for Calendar 2021. https://www.spglobal.com/spdji/en/index-announcements/article/sp-corelogic-case-shiller-index-reports-188-annual-home-price-gain-for-calendar-2021
8. CNN Business. S&P 500 closes at record high for first time in two years. https://www.cnn.com/2024/01/19/markets/stocks-sp500-record-high/

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.