The stock market is in full swing and many investors are now wondering if it’s all just an AI-driven bubble waiting to burst this summer.
However, there are reasons to believe that there is no bubble in the stock market, aside from the valid argument that corporate profits are strong and so are their prospects.
The analysis: The market’s progress in recent months has been, to say the least, impressive. Before Friday’s sharp pullback, the S&P 500 (^GSPC) had risen 15% over the previous two months, a 99th percentile performance relative to history dating back to 1980, according to new research from Goldman Sachs analyst Ben Snider.
“The strength of the recent rally coupled with persistently strong AI momentum has generated a wave of client concern that stocks have moved ‘too far, too fast’ and likely reflect 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 is not a mania destined to end badly for the bulls.
First, the number of initial public offerings (IPOs) remains below average and well below the peaks of the previous cycle.
Second, net issuance of US public shares has increased, but is below past peaks.
And third, the proportion of trading activity in unprofitable stocks remains well below the extremes of the past.
The final result: Of course, no one really knows if they are experiencing a stock bubble. Recent selloffs in hot tech names like Broadcom (AVGO), CrowdStrike (CRWD), and Rubrik (RBRK) following their strong earnings hint that valuations are overstretched. The same goes for the strong negative market reaction to May’s strong jobs report.
But again, it will take a lot more than these reactions to send the market down for an extended period.
Brian Sozzi is the executive editor of Yahoo Finance and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, instagramand LinkedIn. Story tips? Send an email to brian.sozzi@yahoofinance.com.
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