For the first time since the dotcom bubble in 1998-99, the S&P 500 is on track for back-to-back annual gains of more than 20 per cent. Are things getting bubbly?
We’re not there yet, but bubble beliefs – specifically, the idea that stocks are overvalued but will rise anyway – are growing, says researcher and Acadian Asset Management portfolio manager Dr Owen Lamont. He points to the October reading for Yale School of Management’s US market confidence indices, which found that 71.5 per cent of investors surveyed believed stocks were overvalued – the second-highest reading in history, behind April 2000.
Despite this, 69 per cent reckon stocks will rise over the next year. Yale’s survey suggested we were far from bubble beliefs in early 2024, says Lamont, before “getting bubbly” in July 2024. Today, the survey is “red hot”.
He says the three highest periods for bubble beliefs are 2000, 2021, and today.
Lamont looks at four factors to determine whether we are in a bubble: over-valuation (“maybe, yes”), bubble beliefs (“absolutely, yes”), high levels of equity issuance and initial public offerings (“no, not yet”) and new retail investors entering the market (“not sure”).
So where does that leave us? “The bubble is near”, he concludes. “But not here yet. Maybe next year.”
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