Analysts warn of speculative bubble as US stocks hit records amid meme frenzy and rising debt

U.S. equities have surged to record levels this summer, driven by historically low borrowing costs, but analysts are raising alarms about speculative excess and escalating risks. The S&P 500 hit new highs in July, with major technology firms like Nvidia and Meta experiencing dramatic recoveries from earlier-year lows. Meanwhile, a resurgence in meme-stock trading and a key “euphoria” index climbing to double its typical level have intensified concerns about overvaluation and irrational exuberance [1].

The market’s rally has been fueled by a narrow group of high-profile stocks. Nvidia’s valuation crossed $4 trillion, while Meta rebounded by nearly 50% since April. Smaller companies, including Palantir and Coinbase, have also outperformed, with shares surging over 130% and 180% respectively since mid-year [1]. Retail traders, echoing the frenzy of 2021, have piled into names like GoPro and Krispy Kreme, betting on quick profits. Dan Ivascyn, Pimco’s chief investment officer, warned of parallels to the dot-com bubble, noting a “lottery-ticket mentality” that could lead to a dangerous market correction [1].

Valuation metrics paint a stark picture. The S&P 500 is trading at over 3.3 times annual revenues—a record—while price-to-book and price-to-cash-flow ratios near historic peaks [1]. Barclays’ equity euphoria index, which combines derivatives activity, volatility, and sentiment, has doubled from its average, a threshold often linked to speculative bubbles [1]. Stefano Pascale of Barclays highlighted the indicator’s clarity in signaling “euphoric” market conditions [1].

Analysts caution against dismissing structural risks. Rob Arnott of Research Affiliates likened current investments to “picking up pennies in front of a steamroller,” warning that valuations for AI leaders ignore the inevitability of competition. Yet exiting these stocks prematurely could prove costly as momentum persists [1]. The corporate bond market further underscores complacency: top-tier debt spreads over Treasuries have tightened to 0.8 percentage points, levels unseen since 2005 [1]. Deutsche Bank analysts questioned whether this debt-fueled equity buying represents the “hottest euphoria” since the late 1990s and mid-2000s [1].

While trade tensions remain a looming risk, investors appear unfazed by Trump’s proposed tariffs. The U.S.-Japan trade deal, which sets import levies at 15%, has been accepted as a manageable outcome, with markets pivoting to expectations of a similar EU arrangement [1]. Luca Paolini of Pictet Asset Management noted that investors are “happy with anything but a full trade war” [1].

The market’s detachment from broader fiscal concerns—such as soaring U.S. public debt and Federal Reserve independence—has also drawn scrutiny. Treasury yields have remained volatile despite these risks, while the dollar has depreciated nearly 10% against a basket of currencies in 2024 [1].

Source: [1] [title:Analysts stoke bubble fears as US stocks trade at records amid meme frenzy and rising debt] [url:https://coinmarketcap.com/community/articles/6883a41e44d5ab3d177b2751/]