Question of the day: Are we in a market bubble?

Yahoo

6 days ago

Investors are piling into stocks, crypto, and meme names as fears of currency debasement grow.
CFRA Research chief investment strategist Sam Stovall and Yahoo Finance Senior Reporter Ines Ferré join Opening Bid to break down what a possible market bubble could mean for the rest of the year.
To watch more expert insights and analysis on the latest market action, check out more Opening Bid here.
Are we in an epic stock market bubble? Um, Sam, I'm going to punt this one over to you. My case when these questions come up by various folks is you don't know you're in a bubble until it explodes and your portfolio is cut in half.
Absolutely. Well, right now the S&P 500 is trading on a forward PE basis more than two standard deviations above its 20-year mean. Uh, if you look to the 10-year mean, then it is above one standard deviation. And if you shorten that time frame to five years, we're in a fairly normal environment. So I guess it also depends on what you say is normal because technology today is very different than it was 10 or 20 years ago. A little more encouraging though is that I don't see uh sector excesses from the standpoint of how far above their 200 day moving average they're trading. None is one standard deviation or more, so they're all within longer term ranges. But short-term uh declines are always possible. On average, we have had a decline of 5% or more annually since World War II.
And as uh I think uh stock market bubble, I think I go back immediately to the .com craze. A lot of those companies, they didn't they didn't have any money. They didn't make any money because they had no sales and they were just totally clueless. I even go back to the cannabis bubble a few years ago. Same deal, those companies really had no operations. What we're seeing now, I would argue, are the likes of Nvidia and AMD, like companies with real operations making real money, just going up to higher valuation levels. That doesn't make them a bubble.
They're bidding on that AI trade. Look, are we in an asset bubble? Perhaps, perhaps there will be pullbacks, of course, along the way. Uh but we have to keep in mind that the dollar has been in a downward trend, that's stimulative. The US is in this industrial push. XLI is at all-time highs. That's stimulative. You also have stocks at all-time highs. You've got memes meme stocks that are back in vogue and you've got crypto that is also surging. So what this tells me is that investors are trying to put their money into assets because we're in a sort of debasement environment here because they're seeing that the value of their money is eroding. So they're they keep they continue to invest. By the way, there's also companies that are investing in crypto as well. Wall Street says be careful because when we see this speculative frenzy going on, that could increase the risk for pullbacks.