By Saqib Iqbal Ahmed
NEW YORK, June 30 (Reuters) – Soaring stock market valuations, dramatic swings in the market value of trillion-dollar companies, and periodic sharp selloffs have fueled growing concerns that parts of the U.S. stock market may be in a bubble.
Investors have long been skeptical of the astronomical gains in AI and semiconductor stocks, questioning whether Wall Street is inflating another speculative bubble.
Those fears increased last week after tech stocks fell sharply, driven by concerns over debt-funded AI spending and worries over a hawkish Federal Reserve.
Stocks have steadied as investors see sentiment, broadening market participation and solid earnings supporting the rally — but concerns remain.
MARKET FRAGILITY MEASURES RISE
“Looking through the lens of valuations, positioning, and sentiment … all measures of asymmetry and risk are flashing amber,” said Oliver Shale, investment specialist for the U.S. at Britain-based Ruffer.
Some measures of valuation have scaled near-record peaks while certain sentiment gauges are flying high.
“None of this is to say that the end is nigh, but that is a fragile setup for any market,” Shale said.
Indeed, BofA Global Research’s proprietary Bubble Risk Indicator, which scores assets on a scale of 0 to 1, with 1 signaling extreme bubble-like price action, stands at 0.91 for the PHLX Semiconductor Sector and 0.82 for the Technology Select Sector.
VALUATION WORRIES
The U.S. stock market’s valuation has reached levels historically associated with major downturns, as measured by the Buffett Indicator — named after investor Warren Buffett.
The indicator, which compares total U.S. stock market capitalization with gross domestic product, stood at 218% for the first quarter, just shy of the record high of 219% touched in the prior quarter.
The S&P 500 price-to-sales ratio currently sits at 3.22, according to Tajinder Dhillon, head of earnings research at LSEG. That is well above its long-term historical average of 1.84, signaling stretched market valuations.
“Nearly every S&P 500 valuation metric is higher than it’s ever been except, possibly, PE ratios,” said Mark Spiegel, managing member and portfolio manager at Stanphyl Capital Partners.
While the S&P 500 price-to-earnings ratio, the most widely cited valuation metric for equities, has not reached the extreme levels seen during past market bubbles — supported in part by robust earnings growth — some investors remain skeptical.
“There’s a solid argument that the ‘E’ (earnings) in those ratios is an unsustainable bubble in itself,” Spiegel said.
The S&P 500’s price-to-earnings ratio stands at 20.2 times expected 12-month earnings, compared with 25.2 during the dotcom bubble, according to LSEG Datastream.
The surge in AI-driven chip demand has minted big winners on the supply side, but doubts persist about returns for those footing the bill.
“The folks selling the picks and shovels are in incredibly good stead. Those buying them still have to prove that the billions and billions of dollars they’re spending is worth it,” JJ Kinahan, head of retail expansion and alternative investment products at Cboe Global Markets, said in a note.
SENTIMENT MEASURES SHOW MIXED SIGNALS
Sentiment and positioning measures are more mixed.
BofA’s June global fund manager survey showed investors remain bullish, though sentiment eased slightly from May.
In the latest American Association of Individual Investors (AAII) Sentiment Survey, bearish views fell noticeably while bullish sentiment jumped, pushing the bull-bear spread to 8.8% — above its historical average of 6.5% for only the second time in 20 weeks. It is well short of its 44.2% peak, suggesting no signs of euphoria.
Some investors also take heart from a recent broadening in market leadership. After spiking to around 14 percentage points in early 2026, the gap between the S&P 500 and its equal-weight counterpart has been ticking lower in recent sessions, now sitting at roughly 3 points, signaling a meaningful broadening of the rally.
“A red flag is when sentiment and positioning is at extremes, and that’s not what we see now,” Angelo Kourkafas, senior global investment strategist at Edward Jones, said.
While the market may not be screaming danger just yet, investors would be prudent to stay diversified, Brian Jacobsen, chief economic strategist at Annex Wealth Management, said.
“It does look like too many people are assuming fat margins and high growth rates are here to stay, while I’m a bit more skeptical about that outlook.”
(Reporting by Saqib Iqbal Ahmed in New York; Additional reporting by Laura Matthews and Lewis Krauskopf in New York; Editing by Megan Davies and Matthew Lewis)
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