The S&P and Nasdaq are coming off a string of record-high closes. But the euphoria is starting to scare experts, who are sounding several alarm bells.
There’s no doubt that Wall Street has been surging in recent months and weeks, giving an incredible show of strength. Perhaps even too much, several analysts are starting to point out.
After plummeting at record-breaking rates for several sessions following US President Donald Trump’s barrage of tariff announcements and threats on the so-called Liberation Day, US stock indices have practically accelerated sharply, especially since the beginning of this summer, consistently posting record closing prices: a phenomenon many feared was now a thing of the past.
Valuations of several stocks have instead soared to all-time highs, in the wake of a euphoria that has replaced the pessimism of April, literally driving major US stock indices sharply higher, particularly the S&P 500 and the Nasdaq Composite. And so classic signs of speculative behavior have re-emerged in Wall Street: Is the US stock market entering a speculative bubble environment? Are we already there? In the best-case scenario, how much longer can this buying boom last?
Wall Street, the situation with continuous records for the S&P 500
A Financial Times article analyzed the current market conditions, noting that the S&P 500 in particular has continued to soar to new record highs, amid several signs of a bubble.
Nvidia’s stock price rally couldn’t go unmentioned, as it became the first publicly traded company in the world to see its market capitalization approach the $4 trillion market cap level for the first time ever.
But the suspicion that Wall Street was gripped by an irrational exuberance was supported by some analysts, especially by the great return of trading in meme stocks, a major phenomenon that characterized 2021 in particular. Traders and the small investor community flocked to many of these stocks, particularly those of the GoPro wearable video camera manufacturer and the Krispy Kreme doughnut chain.
Many strategists have begun to advise caution to the evidently over-excited investor community.
PIMCO alert: Wall Street faces speculative mindset
Among them is Dan Ivascyn, chief investment officer of asset management giant PIMCO, with $2.1 trillion in assets under management (AUM).
“I think we’re starting to see perhaps the beginning parallels of what we saw during the internet boom of the late 1990s and early 2000s. We’re seeing a lottery-ticket mentality that tends to set in...it’s a dangerous environment.”
But the alerts weren’t sounded ’only’ by experts. The FT also advised investors to take a look at some numbers related to company fundamentals. Bloomberg data, for example, showed that shares traded on the S&P 500 are now valued by investors at more than 3.3 times their revenues, a record high.
Also keep an eye on another indicator compiled by Barclays, known as the " Equity Euphoria Indicator", which is designed by combining several financial metrics such as derivatives flows, volatility, and market sentiment.
Well, this indicator has soared to double its normal value, entering levels historically linked to asset bubbles.
"The indicator is clearly showing that the market is euphoric," commented Stefano Pascale, head of US equity derivatives strategy at Barclays.
But does Wall Street really have anything to celebrate?
What’s surprising to experts, among other things, is that Wall Street actually has nothing to celebrate, given that the trade agreements on tariffs that the United States signed first with Japan and then with the European Union still entail tariffs on US imports that will remain higher than the levels before the start of Donald Trump’s second term in the White House. These initial agreements are negative, but investors seem to be happy with something that is nothing less than a broad trade conflict, emphasized Luca Paolini, chief strategist at Pictet Asset Management.
The other surprising factor, the Financial Times further explained, is that stocks continue to appear immune to concerns about the rising interest costs the United States is destined to incur on its growing federal debt, just as no particular fears appear to be emerging for the future independence of the Federal Reserve, continually under siege by Trump, who never misses an opportunity to insult Jerome Powell.
In reality, financial assets that are discounting these fears are there: the US dollar, affected by a significant depreciation that has caused it to sink by almost 10% since the beginning of 2025 against a basket of major world currencies, and Treasuries, a benchmark for US public debt.
The truth is that Wall Street’s rise has been driven primarily by mega-cap stocks, namely US Big Tech, the same ones that have contributed to the historic rallies US stocks have enjoyed in recent years. These are the same ones that belong to the Magnificent Seven group, which are Apple, Tesla, Google, and Facebook.
After collapsing in early 2025, these stocks have effectively rebounded, allowing the US stock market to reach new heights.
Just think, the FT also reports, that Nvidia and Meta Platforms shares have soared 100% and 50%, respectively, from the intraday lows hit in the terrible month of April.
“Wall Street is pricing AI players without considering competition”
Definitely too much, according to experts such as Rob Arnott, founder and president of the asset management group Research Affiliates, who noted that “price-to-earnings, price-to-cash flow, price-to-book, price-to-dividends, are all hovering near record highs,” also highlighting a phenomenon worth considering: “The market is valuing leading AI companies as if they will maintain uncontested dominance in the future. At the same time”, Arnott continued, “there is a certain caution in rotating away from high-profile stocks that show signs of a bubble, as the fear is that if you exit too soon, you will end up in trouble.”
In all of this, there has been a warning from Deutsche Bank analysts, who have predicted the strongest euphoria since the bubbles of 1999 and 2007. Meanwhile, some advise against forgetting the value also present in often-overlooked small caps stocks. And these could instead hold some attractive opportunities. As long as the house of cards doesn’t end up collapsing completely on Wall Street.
Original article published on Money.it Italy 2025-07-29 15:30:25.
Original title: È allarme bolla a Wall Street. Valori record, ma attenti: roba da lotteria
