Market getting a little too frothy?
Stocks are soaring. Investors are flocking to hyped trends like AI. And the IPO market may be finally set to stage a comeback.
It’s still not officially summer yet. But things are heating up on Wall Street.
The S&P 500 and Nasdaq hit new 52-week highs Thursday and the Dow isn’t far from one either. Stocks surged, rebounding from Wednesday’s Fed-induced volatility, as investors cheered surprisingly strong retail sales figures and the fact that weekly jobless claims remain relatively low. More rate hikes? Inflation? Who cares?
Wall Street might be getting ahead of itself though. Speculation is starting to become a problem. Just look at how well Nvidia (which hit another record high Thursday) and other artificial intelligence stocks have done.
Several other blue chip stocks are now trading at all-time highs, including Apple, Oracle, homebuilder Lennar, drug giant Eli Lilly, shoe maker Deckers Outdoor, Ferrari and the Liberty Media tracking stock for Formula 1.
The CNN Business Fear & Greed Index, which I helped create in 2012, is showing signs of Extreme Greed. (Check out the video below that I narrated about the index.)
What’s more, the market for initial public offerings might finally be set to rebound. Mediterranean fast casual food chain had a stellar debut Thursday. The stock more than doubled after pricing its IPO above the expected range.
I’m a bit worried that traders are now starting to get too excited about the economy and continued gains for the market. Growth is still sluggish and expected to remain so for the foreseeable future.
This wouldn’t be as big of a concern if fundamentals were stronger and valuations were more reasonable. But according to data from FactSet, profits for the S&P 500 are expected to rise just 1.2% this year. Despite this, the price-to-earnings ratio for the market is above its 10-year average.
To be sure, analysts are predicting earnings growth of 12% in 2024. That seems a bit high though, and forecasts often have a way of heading lower as more data comes in.
Now I’m not suggesting that the market is destined for a big crash. But with each passing day, it’s getting harder to justify stock prices in an environment where growth is anemic at best.