29-07-2025
Market is seeing 'pockets of speculation,' not 'excessive' froth
Concerns about extended market valuations are reemerging as the S&P 500 (^GSPC) and the Nasdaq Composite (^IXIC) trade at record highs.
PNC Asset Management Group chief investment strategist Yung-Yu Ma says while there are "individual pockets of speculation," that doesn't necessarily translate to broader market frothiness. He also highlights market drivers that could fuel gains.
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Well, stocks closed at yet another record on Monday, making for the 15th all-time high for the S&P 500 in 2025. With stocks at this level, should investors be concerned about markets getting frothy, about extended valuations? Want to bring in Yong-Yu Ma, PNC Asset Management Group Chief Investment strategist. It's great to see you. So, this has been an ongoing question, right? Because we keep seeing markets hit highs, and we keep seeing the price earnings ratio move higher for the S&P 500. Do you think we are in a sort of frothy period here?
Thanks, Julie. It's great to be here. I think we have to distinguish between pockets of speculation and outright excessive market froth. I don't think we have excessive market froth here. Yes, you can point to individual pockets of speculation, which is natural actually, after two years of strong gains in 2023, 2024, uh right now where we are in the S&P 500 hitting new highs. You're going to see some pockets of speculation. But it's really not until you see sort of rampant excessive froth across the board that you should really be concerned that markets have just gone too far and priced in too much. I don't think we're at that point. I don't even think we're close to that point for that matter.
Yong-Yu, just for reference, what would that look like? What signals would you be looking for?
Yeah, there are a few big ones. Investor sentiment right now is just not it it's actually pretty neutral if you look at some of the survey measures of investor sentiment that during times of froth tend to stay high, even during pullbacks, tend to stay high. You're seeing them read pretty neutral these days. The IPO market is just getting back to what I would say is a normal healthy level rather than sort of a booming IPO market where, uh, you're just getting a flood of companies coming to the market, massive first day gains across the board. That's really some signs that you would see, uh, froth really taking hold across the market. I think you you might see some meme stocks, as we're seeing now, uh, being speculative, but that doesn't mean there's across the board, uh, froth that's in the market right now.
Gotcha. So, in terms of what is driving markets higher that might be sort of more fundamental here, is it as simple as earnings? That we continue to see earnings come in perhaps better than feared, and we're seeing that fundamental strength, the consumer keeps spending, etc.
I think earnings are part of it. Uh, inflation is part of it. I think there's a belief in the marketplace right now that inflation will be transitory and that the Fed will cut rates, uh, not not this week, of course, but later in the year the Fed will begin a new rate cutting campaign. And of course, tech and AI and and the strength of that and the spending that goes into that are just very strong drivers, and there's a lot of momentum that doesn't look like it's going to be slow down anytime soon. So, I think really those drivers when you put that together in the context of a macroeconomic environment, we look six months out, we're getting interest rate cuts, we're getting stimulus from the fiscal spending or the the fiscal budget bill. And you have an environment where those drivers that are in place, uh, can really remain strong and have some more tail winds, uh, with the Fed cutting rates. I think that's what the market is keying off of right here.
