- The surging price of stocks, crypto, and gold has sparked fresh warnings of asset bubbles.
- David Rosenberg, Jeremy Grantham, and Larry Summers are among those worried about lofty valuations.
- Experts caution that stocks have outpaced earnings and a recession could tank the market.
Technology stocks such as Nvidia have skyrocketed, gold and bitcoin prices recently touched record highs, and many on Wall Street predict a raging bull market and no recession this year.
The outlook seems almost blindingly bright, so perhaps it’s no surprise some investors, economists, and analysts are worried we’re in a bubble.
They’ve cautioned that asset valuations are disconnected from reality and could come crashing down, and the economy is under serious pressure and headed for a downturn.
Here are six recent bubble warnings from experts this week:
1. David Rosenberg
The 30% surge in the S&P 500 over the past year, even as corporate earnings rose just 4%, was a 1-in-10 market event, the president of Rosenberg Research said in a YouTube video posted Thursday.
The former chief North American economist for Merrill Lynch questioned how Wall Street could expect earnings to rise 11%, or almost three times as much this year, when GDP growth is predicted to slow.
Rosenberg said he was even more skeptical of stocks at today’s “nosebleed valuations” than he was a year ago, and the fact they were higher during the dot-com boom was irrelevant. “We are nonetheless in a market bubble.”
2. Paul Dietrich
“The Stock Market Bubble Is About to Burst — Look Out!” was the title of Dietrich’s commentary this week.
The chief investment strategist at B. Riley Wealth warned the S&P 500 could crash 49% to its pandemic lows if stock valuations retreated to historical norms and a recession spooked investors.
“This stock market has moved into the bizarrely overvalued,” he said, arguing that earnings would need to surge 45% this year for valuations to make any sense. “This is how far this bubble has gone.”
3. Jeremy Grantham
Stocks are priced to disappoint, AI is a bubble that’s bound to burst, and a recession looks probable, Grantham warned in a report this week.
The cofounder and long-term investment strategist at GMO compared the recent surge in stocks to the rallies before the Great Depression and the dot-com crash, and said the market’s long-term prospects were terrible at these valuations.
Grantham also suggested the AI craze would end and bring the stock market down with it. He also thinks a recession is likely to hit as investor speculation fades and the delayed impacts of the Fed’s rate hikes are felt.
4. Michael Hartnett
“Tremendous euphoria” over the prospect of interest-rate cuts has spurred investors to scoop up stocks, gold, cryptocurrencies, and even corporate bonds, Hartnett told Bloomberg this week.
The chief investment strategist at Bank of America said the stock-buying boom has characteristics of a bubble, including the speed and magnitude of price increases, the heady valuations reached, and the narrow focus on AI-related companies like Nvidia.
However, Hartnett warned that US economic data has grown more “ominous” with clear signs that the labor market is “cracking” and inflation might not fall much further.
“If risk assets say, ‘We don’t care,’ that is very symptomatic of the bubble mentality,” he added.
5. Larry Summers
The former Treasury Secretary warned investors this week against assuming the Fed would cut rates this year, given how stretched asset valuations have become.
“I certainly think we’re at least at the foothills of bubbles,” he told Bloomberg.
While financial markets aren’t as frothy now as during previous peaks, “it’s not that we’re a million miles away from that either,” Summers added.
6. Michael Gayed
Gayed flagged the recent surge in gold, utility stocks, and long-term Treasury bonds as evidence of mounting market jitters in an InvestorPlace op-ed this week.
“It’s uncommon for these three traditionally defensive asset classes to move in such harmony, and historically, this kind of movement has been a precursor to a broader market shift,” the portfolio manager at Tidal Financial said.
“The fact that it’s happening during a bubble of speculative trading screams that something could be about to break,” he added. “Be warned.”
Read the full article here
