There’s a lot of chatter brewing on Wall Street about a potential new stock market bubble. Indicators—everything from meme stock surges to soaring call options—are raising eyebrows across the financial spectrum.
In a week filled with red flags, experts from several major financial institutions, including Goldman Sachs, Bank of America, Yaldeni Research, Apollo, and JPMorgan, are noticing levels of speculative behavior and market concentration reminiscent of past bubbles.
Goldman Sachs: High Speculation Levels
Goldman Sachs analyst Ben Snyder shared on Friday that current metrics for speculative trading are hitting heights not seen since the bubbles of 1999-2001 and 2020-2021.
This surge appears to be driven by a rush in trading volumes of unprofitable and penny stocks, along with tech stocks fetching high multiples. Retail favorites have also seen a significant rally of around 50% since April.
Snyder also pointed out that there’s been a considerable spike in the shortest stocks, which have gained over 60% in three months. Such spikes are only rivaled by those of the dot-com bubble and the meme stock frenzy.
“Speculative trading has come with one of the sharpest short squeezes we’ve seen, prompting memories of both 2000 and 2021,” Snyder remarked.
Additionally, call options are now making up 61% of all options activity—a figure not seen since 2021. The second quarter alone has seen $9 billion in SPAC capital raised, marking the strongest quarter since early 2022.
Bank of America: Retail Participation Fuels Bubble
Michael Hartnett, Bank of America’s chief strategist, pointed to a bubble driven by policy changes, characterized by deregulation and monetary easing.
He noted a global tilt towards a more lenient monetary policy, with expectations for global policy rates to drop from 4.8% to 4.4% over the past year and then to 3.9% in the next year.
On another front, the Trump administration is pushing through an executive order that would allow private equity in 401(k) plans while relaxing trading rules for retail investors—lowering margin requirements from $25,000 to $2,000.
Hartnett indicated these shifts could lead to “greater retail participation, higher liquidity, increased volatility, and ultimately, bigger bubbles.”
Is AI Driving a New Bubble?
Torsten Sløk, Apollo’s Chief Economist, issued a stark warning, suggesting that today’s bubble related to AI might even surpass the tech bubble of the late 1990s.
He pointed out that the price-to-earnings ratios of leading S&P 500 companies involved in AI—like Nvidia and Meta—are now higher than during the dot-com boom.
“Almost 40% of the S&P 500 is concentrated in just 10 stocks,” Sløk observed. “If I invest in the S&P 500 today, I’m essentially banking on the ongoing success of the AI narrative.”
JP Morgan took a more straightforward approach in their research notes from July 22, highlighting excessive interest in highly volatile stocks as a “red flag for the broader market,” with forward price-to-earnings ratios above historical averages potentially setting the stage for disappointment if growth cools.
Yaldeni: Cautious Optimism
Market strategist Ed Yaldeni expressed tempered concern regarding an impending crash but acknowledged that the market appears to be riding a wave of enthusiasm.
“It’s slowly melting,” Yaldeni remarked, suggesting that while the risk of a recession and resulting bear markets is low, factors like baby boomer wealth and solid consumer spending, supported by growing confidence in trade deals, might keep things steady.
“The net worth of my generation is around $80 trillion,” he noted. “They’re retiring and spending, and with their portfolios rising, they’re feeling good.”
