““Euphoria” on Wall Street raises “bubble” concerns – FTWall Street’s relentless rise this summer has pushed stock valuations close to record levels, prompting warnings of “euphoric” markets entering “bubble” territory. The S&P 500 index has reached historic peaks, and the cost of borrowing for US corporations has approached its lowest level in decades.
”, — write: unn.ua
DetailsThe S&P 500 index has hit a series of all-time highs this month, while the cost of borrowing for US corporations on government debt is approaching a decade low, a sharp turnaround after the April downturn triggered by US President Donald Trump’s trade war.
Even as the US president signs deals confirming the highest US import tariffs in a decade, signs of market optimism are growing. Shares of high-growth tech companies have soared to new highs, making Nvidia the first public company worth $4 trillion, and the hype around 2021’s “meme stocks” has revived, with retail traders buying shares of camera maker GoPro and donut chain Krispy Kreme.
AI giant Nvidia became the first company with a market value of $4 trillion10.07.25, 08:20 • 2014 views
“I think you’re starting to see, probably, very early parallels to what you saw during the dot-com boom of the late ’90s, early 2000s,” said Dan Ivascyn, chief investment officer at Pimco, which manages $2.1 trillion in assets. “There’s a lottery ticket mentality… It’s a dangerous situation.”
According to Bloomberg, S&P 500 index stocks are now valued by investors at more than 3.3 times their sales, an all-time high.
Barclays’ equity market “euphoria” indicator, which reflects derivatives flows, volatility and investor sentiment, has doubled from its normal level, reaching a level that in the past has been associated with asset “bubbles.”
“[The indicator] clearly shows that the market is in euphoria,” said Stefano Pascale, head of US equity derivatives strategy at the bank.
Investors welcomed the agreement between the US and Japan to impose 15% tariffs on imports from Japan and the prospect of a similar agreement with the EU. While these tariffs are significantly higher than levels that existed before Trump came to the White House, they are less extreme than those imposed after his “liberation day” statement, which shocked markets.
US and Japan Conclude Trade Agreement: Details and Market Implications23.07.25, 04:31 • 7222 views
“These initial deals are bad, but investors are happy with anything short of a full-blown trade war,” said Luca Paolini, chief strategist at Pictet Asset Management.
Stocks have been immune to fears about excessive US government borrowing and the independence of the Federal Reserve, which have negatively impacted Treasury bonds and the dollar, which has fallen almost 10% this year against a basket of competing currencies.
Many large-cap technology stocks, which have driven most of the US market rally in recent years, have been the driving force behind the rebound after the sell-off earlier this year. Chipmaker Nvidia and Meta, Facebook’s parent company, have risen 100% and 50% respectively from their intraday low in April.
In the S&P index, “price-to-sales, price-to-cash flow, price-to-book, price-to-dividend — they’re all near record highs,” said Rob Arnott, founder and chairman of asset management group Research Affiliates. He compared investing in the small group of technology stocks that dominate the index to picking up pennies in front of a steamroller.
“The market is valuing the current dominant players in AI as if they will have no competitors in the future,” he said. “At the same time, it’s worth being wary of abandoning popular and high-profile names, because if you do it too early, you’ll be in trouble.”
A group of smaller companies performed even better. High sales from government contracts helped defense group Palantir grow 140% since its stock fell in April. Cryptocurrency exchange Coinbase jumped almost 180%, fueled by a wave of optimism in the digital asset industry sparked by Trump’s election victory in November.
Last week, Bitcoin rose above $120,000 for the first time as companies and investors continue to invest in crypto assets entering the mainstream financial market.
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This sentiment has also spread to corporate credit, where the interest rate premium for highly rated US companies compared to benchmark government debt has fallen to 0.8 percentage points, close to its lowest level since 2005.
Deutsche Bank analysts, however, expressed doubt in their research note on Thursday whether the increase in borrowing to finance stock purchases is a sign of “peak euphoria” since 1999 and 2007.