The stock market is a topic that always generates a lot of buzz, especially when there are concerns about a potential bubble forming. However, according to experts, there are two key ingredients missing that suggest the stock market is not in a bubble just yet.
One of the key indicators of a stock market bubble is an IPO frenzy, where companies rush to go public in hopes of capitalizing on the hype. In both 1999 and 2021, there was a surge in IPO activity, with hundreds of companies going public and raising billions of dollars. However, in 2024, the IPO market has been relatively quiet, with only a handful of companies going public so far.
UBS’s CIO for global wealth management in the Americas, Solita Marcelli, pointed out that the lack of IPO activity and the subdued first-day returns for newly public companies are not indicative of a stock market bubble. Instead, investors are focusing on quality and profits rather than speculative growth, which is a positive sign for the market.
Another key ingredient missing from the current stock market environment is excessive leverage. During a bubble, investors often take on high levels of debt to amplify their returns, but according to TS Lombard, margin debt has only risen modestly in recent months and is still well below its record high in 2021. Additionally, investors have been using put options to protect themselves from potential losses, which is not typical behavior during a bubble.
Overall, experts believe that the stock market is not in a bubble and that the current environment is more focused on quality and profitability rather than speculation. With a strong economic backdrop and tailwinds from AI, the stock market is expected to continue trending higher throughout 2024. Investors are advised to maintain a core allocation to US large-cap stocks to take advantage of potential opportunities in the market.
