In the FT again, Ruchir Sharma, chair of Rockefeller International called the US stock market boom “the mother of all bubbles”. Let me quote: “global investors are committing more capital to a single country than ever before in modern history. The US stock market now floats above the rest.
US technology stocks haven't been swept up in a financial bubble, even after their meteoric rise this year amid enthusiasm for generative artificial intelligence, according to Goldman Sachs Research. These companies are likely to continue driving returns for investors.
Investor enthusiasm for artificial intelligence stocks has propelled markets to new all-time highs in 2024. Unfortunately, the spectacular surge in a handful of leading AI technology stocks has also raised concerns among skeptics that the market could be overheating.
The market is entering the final two trading days of 2024, and stocks are set to post another strong year of gains. The Nasdaq Composite (^IXIC) once again led the charge in 2024, rising more than 30% thus far while the S&P 500 (^GSPC) has risen over 25%. The Dow Jones Industrial Average (^DJI) is up a more modest 14%.
The bubble in tech stocks has a few more years to run before it bursts, tech analyst Gene Munster said. The top tech analyst told BI he thinks the Nasdaq could plunge as much as 30% when the bubble deflates. Top-flying hardware stocks like Nvidia will probably face the most severe losses, he said.
The net result is that, at a value of $1.3 trillion, private equity investment activity in the first three quarters of 2024 was up 30% on the same period in 2023 ($1 trillion) and was the third highest deal value for the first three quarters of a year on record.
With the caveat that very few can recognise a bubble in advance, we believe that the US equity market is very expensive (perhaps too expensive), and merits a correction, but we don't have evidence to cry “bubble” just yet.
The Next Big Short exposes the hidden risks of private equity and private credit that are threatening financial stability. As the private equity bubble unwinds, investors can now position themselves to protect their wealth and potentially profit from a market shift on par with the Global Financial Crisis.
But here's the thing: bubbles are usually based on speculation without substance. AI has substance. A lot of it. Unlike the dot-com bubble, which saw inflated valuations of companies with no real business models, AI has already proven its value in real-world applications.
Now, there may be light on the horizon: Economists are more optimistic about the US economy as a whole, lowering the risk of a recession in 2024 to below 50%. For the tech sector specifically, analysts are optimistic about a potential return to modest growth in 2024, with more robust prospects for 2025.
Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. Those of you that have flipped on CNBC either on purpose or by accident sometime in the past two years may know those companies as the so-called Magnificent Seven, or “Mag 7” in Wall Street-speak.
“The US economy is in a good place,” writes David Mericle, chief US economist in Goldman Sachs Research. “Recession fears have diminished, inflation is trending back toward 2%, and the labor market has rebalanced but remains strong.” Goldman Sachs Research predicts US GDP will grow 2.5% on a full-year basis.
We all live in a gigantic, invisible space bubble. The “Local Bubble,” as astronomers call it, is a gas pocket in space about a thousand light years wide. As a University of Virginia undergraduate student, Theo O'Neill recently created the first 3-D map of the Local Bubble's magnetic surface.
If the corporate debt bubble bursts, the bonds would be repriced, resulting in a massive loss by the mutual funds, high-yield funds, pension funds, and endowments with corporate bond assets.
Our readings suggest that, while equities may have rallied meaningfully, we're unlikely to be in a bubble. For the Mag-7, some of our readings look frothy, but we do not see bubbly conditions in aggregate.
An asset bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This steep price rise typically is followed by a rapid decrease in value, or a contraction, when the bubble bursts.
"Traditional valuation measures suggest the S&P 500 is currently more than 20% overvalued, yet trend-following measures, like momentum, remain strong."
Private equity activity is up 36% by value this year versus 2023. PE deals surge 36% in value, hitting a high not seen since a two-year lull. Valuation gaps are closing, leading to more completed deals. The PE market remains upbeat, expecting growth from rate cuts and increased deals.
Global equity markets are likely to remain challenged in 2024 as the world transitions to a regime of higher trend inflation and interest rates. This transition could generate shifts in earnings growth expectations, triggering volatility. Close attention to risk management will be needed.
Private equity owners make money by buying companies they think have value and can be improved. They improve the company or break it up and sell its parts, which can generate even more profits.
In fact, Rossbach declared: “We are not in a tech bubble of any kind”. “There are always going to be parts of the market and industries that are overvalued, but if you look at markets overall, the valuations don't seem to be excessive. Particularly in tech, they're not excessive at all.”
The once-booming tech industry is facing a significant downturn, marked by layoffs, hiring freezes, and a general decline in job opportunities. Indeed.com reported a more-than-30% decline in postings for software development jobs since February 2020, and Layoffs.
Whether the AI bubble will burst or deflate slowly remains uncertain, but one thing is clear: AI will continue to shape the future, we just need to be mindful of the risks along the way.