After three years of unusually strong market returns, it’s reasonable to ask whether stocks are in a bubble. The answer may depend less on the market as a whole and more on which parts of the market you’re looking at.
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AJ, every day I have a client ask me, and rightfully so. Is the stock market in another bubble?
Yeah, it’s a good question. I’ve heard it quite a few times too, and I think it’s probably a responsible thing to ask from time to time especially with three years in a row of abnormal returns, we’ll call it. But I think you need to kind of narrow down that question and ask, “Which stocks are you talking about?” or “What do you think is actually in a bubble?
Is it the Mag 7? Is it the S&P 500? Is it every stock out there? Because if I look at the Mag 7, the reality is four of the seven are actually underperforming the S&P this year. So, I think some of these big blue-chip, high-quality names, especially in technology, to me, it looks like they’ve earned some of the returns that they’ve posted over the last handful of years.
But then I think if you look down into the smaller parts of the Russell 2000, whether it’s these quantum computing stocks or biotech, they’re, for lack of a better term, they’re really just publicly traded science projects. So those being up five or six hundred percent in a year, I think that’s bubble activity.
But I think if you compare 2025 and then back to 1999 in the dot-com bubble, the business landscape is a whole lot different. Today’s companies are robust. There’s lots of cash. The earnings are real.
And I think that brings you to the question of if the bubble does burst, if we are in a bubble and it pops, what do you do? I think today you can look around and there’s actually things to buy. I think when the bubble burst in 1999, everybody looked around and said, “There’s no revenue, there’s no profits, there’s no technology here. What do I do?”
So essentially, back in 1999, there was almost nothing left to buy?
Essentially, yeah.