The stock market is on a tear, and many investors are now wondering if it’s all just one artificial intelligence-fueled bubble waiting to explode this summer.
There are reasons to believe there is no stock market bubble, however, besides the valid argument that corporate earnings are strong and so are their outlooks.
The analysis: The run-up in the market in recent months has been breathtaking to say the very least. Prior to Friday’s steep pullback, the S&P 500 (^GSPC) had surged by 15% during the prior two months, a 99th percentile return relative to history dating back to 1980, according to new research from Goldman Sachs analyst Ben Snider.
“The strength of the recent rally alongside persistently strong AI momentum has generated a wave of client concern that stocks have moved ‘too far, too fast’ and are likely reflecting an unsustainable degree of investor euphoria,” Snider wrote.
Read more: How to protect your portfolio from an AI bubble
Snider offered three charts that suggest that while the trading activity is feverish, it isn’t a mania destined to end badly for the bulls.
First, the number of initial public offerings (IPOs) remains below average and well below prior cycle peaks.
Second, net US public equity issuance has increased but is below past peaks.
And third, the share of trading activity in unprofitable stocks remains well below past extremes.
The bottom line: Of course, no one truly knows if they are experiencing a stock market bubble. Recent sell-offs in hot tech names like Broadcom (AVGO), CrowdStrike (CRWD), and Rubrik (RBRK) following their strong earnings hint at valuations being too stretched. So does the sharp negative market reaction to the solid May jobs report.
But again, it’s going to take a lot more than these reactions to bring the market down for a prolonged stretch.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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