U.S. stocks have surged this summer to levels not seen in years thanks to very low borrowing costs. Yet record valuations, a revival in speculative “meme” trading and a key “euphoria” indicator sitting at bubble‑like levels have many investors uneasy.
This month, the S&P 500 reached new all‑time peaks, and U.S. firms are enjoying borrowing rates close to multi‑decade lows. FT reports this turnaround contrasts sharply with the sharp sell‑off in April triggered by President Donald Trump’s threats of escalating trade tariffs.
Although Trump moves ahead with import duties at levels not witnessed for a generation, signs of overheating are accumulating. Major technology firms have soared to fresh heights. Nvidia (NASDAQ:) was the first to hit a $4 trillion valuation while a resurgence of last year’s meme‑stock frenzy sees retail traders piling into GoPro and Krispy Kreme (NASDAQ:) expecting rapid returns.
I think it’s the time to see perhaps some very early parallels to what you saw back with the internet boom in the late 1990s and early 2000s, it can be a dangeous deadlock.
Markets Are Settling for Less as Bad Deals Beat Full-Blown Trade War
According to Bloomberg, the S&P 500 is trading at over 3.3 times annual revenues, marking an unprecedented valuation.
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It can be called as so‑called “equity euphoria” index, a composite of derivatives activity, volatility and sentiment, has climbed to twice its typical level, a threshold often associated with bubble conditions.
Market participants greeted the U.S.‑Japan trade deal, which sets Japanese import levies at 15% and are now anticipating a similar arrangement with the EU. While these tariffs exceed pre‑Trump levels, they are milder than the dramatic rates warned in his “liberation day” address that had previously jolted equities.
Equities have largely ignored worries over ballooning U.S. public debt and potential threats to Fed Res independence, factors that have unsettled Treasury yields. The dollar has declined almost 10 percent this year versus a basket of currencies.
From my point of view, it is worth to use valuation metrics such as price‑to‑sales, price‑to‑cash‑flow, price‑to‑book and price‑to‑dividend ratios across the index are approaching historic peaks.
From my point of view the prospect of deregulation and corporate tax cuts may finally give investors conviction to add to previously unloved areas of the market, like value and mid/small cap stocks, which are also benefiting from earnings recovery and attractive valuations. However, volatility may be ahead should more growth-negative policies emerge, such as tariffs.