Speculative stocks like Opendoor and Kohl’s are surging, reminiscent of 2021’s meme stock frenzy.
Crypto prices are rising, fueled by Trump administration policies and companies adding bitcoin to their balance sheets.
Market breadth is improving and the economy remains strong, but stock valuations are stretched and the job market shows signs of weakening.
Some investors say the action is the latest phase in what has turned into a near-euphoric rebound from April’s tariff turmoil. Since the market tumbled and then turned higher, there has been a stampede into risky assets such as meme stocks, cryptocurrencies and shares of smaller companies that have yet to turn a profit.
To some, this resembles a bubble—a period of frenzied market activity and speculation that artificially inflates asset values, driving prices to an eventual breaking point…
Speculative stocks are having a moment
Crypto prices are surging
Breadth has improved… Analysts typically consider that kind of improving breadth a sign of a sustainable bull market. ..
Yet stock valuations are stretched. The equity risk premium, defined as the gap between the S&P 500’s projected earnings yield and the yield on 10-year Treasurys, is close to zero. That means that the extra return for owning stocks over lower-risk bonds has nearly vanished, which investors consider an unhealthy sign…
Private-sector job growth has fallen to the lowest level in eight months. Hiring has slowed to a trickle, and college graduates are struggling to land roles.… [end quote]
Bubbles end when euphoria dries up and the next buyer simply doesn’t arrive.
And WisdomTree has it as positive but below the median (page 19 of 32):
Who to believe, and does it really matter since it is largely based on a guess about future earnings (especially when such guesses are often below actual results).
Sheesh there are horrible disconnects in that chart as yields rise.
Very well put together chart.
There will always be money on the sidelines. Money changes hands for assets. While a decline in the asset can make it worth less money that does not reduce the money on the side lines.
Point being money on the side lines makes higher valuations higher. Until it does not.
The market can stay irrational for a while. The current policies in tariffs and corporate taxes are destroying the American economy going forward.
At the same time, their combined earnings (north of $150 billion) make up more than half of the total earnings of the S&P 500. In addition, their earnings growth rate is more than twice that of the rest of the index.
Yesterday Microsoft said it has trouble keeping up with demand for Azure, its cloud computing platform, and Nvidia has said its growth is constrained by the supply of chips. Perhaps the high share of the S&P market cap is justified.
Perhaps. Don’t get me wrong, I’m not suggesting short-term apocalypse, just questioning the commonly held belief that the Magnificent 7 will soar to infinity.
There is also something to be said about not having all of your eggs in one magnificent basket.
The AI driven frenzy could all slow way down with regulatory reforms or an industry disruptor…enter open-source Thinking Machines Lab AI.
You may or not think that a recession is in the very near future, but there’s certainly one in the future. With many of the Magnificent 7 companies depending on advertising revenue, they’ll take a big hit. Advertising spending is the first to get slashed during economic downturns.
Second to Lastly - Lots of dorks are flocking to tech, just for the flock of it! Take recent IPO launches of Figma, Circle, and CoreWeave as examples.
Lastly - lots of money is flying into large cap tech, this typically leads to overvaluation.
When you have money, money isn’t everything. Thinking Machines just wrapped up their seed round, valuing the company at $12 billion. This was one of the largest seed rounds in history.
Mira Murati may change the existing, albeit infant paradigm of AI. She’s anything but foolish.
