Strategists see a stock bubble — and it’s not the Mag 7’s fault | Goose Pod

Authors: William Edwards

Publisher:

Business Insider

Published: 8/2/2025

Language:English

--:--

Aura Windfall

Good morning 老王, I'm Aura Windfall, and this is Goose Pod for you. Today is Wednesday, August 27th. It's a joy to connect with you today, and we have such a fascinating topic to explore together.

Mask

I'm Mask. We're here to discuss a brewing stock bubble. But the culprit isn't who you think. Forget the Magnificent 7; the market has a new problem, and we're going to dissect it piece by piece. Let's not waste any time.

Aura Windfall

Let's get started. So, the headlines are buzzing about a stock market bubble, but there's a twist. It seems the usual suspects, the big tech giants known as the 'Magnificent Seven,' aren't the primary cause this time. What's really happening here?

Mask

Exactly. Everyone's been obsessed with the Mag 7, but that's a distraction. The real story is with the next tier, what strategist Arun Sai calls the "Terrific 20." Their valuations are surging past levels we've seen in over a decade, and it’s not because their earnings are exploding.

Aura Windfall

That sounds concerning. What I know for sure is that when a stock's price rises without the company's actual profits growing, it can be a sign of something unsteady. It’s like a beautiful balloon being stretched thinner and thinner. Is this what they call 'speculative fervor'?

Mask

It's pure speculative fervor. We're seeing "multiple expansion," not earnings growth. The S&P price-to-earnings multiple is at a scary 30. If that number drifts down to even an elevated 25 over the next five years, any gains from earnings or dividends will be completely wiped out.

Aura Windfall

Wiped out entirely? That's a powerful statement. It paints a picture of potential stagnation, or even loss, for investors who might feel secure right now. And these 'Terrific 20' companies, they're not just tech, are they? They're more connected to our everyday economy.

Mask

They are the real economy. We're talking about financials, energy, industrials—names like JPMorgan, Walmart, and Visa. These aren't niche tech plays; they represent about 17% of the MSCI US index. Their overvaluation makes the 'market isn't overpriced' argument impossible to justify. The foundation is weak.

Aura Windfall

So, the very breadth of this rally, which some might see as a sign of a healthy, broadening market, is actually the source of the danger. It means the overheating isn't contained to one small corner of the market anymore. It’s becoming widespread.

Mask

Broad participation is a positive only when it's driven by fundamentals—by actual earnings. When it's driven by hype, it's a contagion. Richard Bernstein is already drawing parallels to the dot-com bubble. He sees the same excess optimism, the same reckless abandon. It’s a massive opportunity if you’re patient.

Aura Windfall

Patience is such a powerful virtue in these moments. It’s about finding the stillness in the storm. Some strategists, like Ulrike Hoffmann-Burchardi at UBS, are gently advising caution, suggesting strategies for capital preservation. It seems the quiet warnings are beginning to get louder.

Mask

Quiet warnings are for people who are afraid to be right. The data is screaming. Leveraged ETFs, zero-day options, low-value stock trading—it's all picking back up. This isn't a signal; it's a declaration of irrationality. The table is being set for a major correction.

Aura Windfall

It truly feels like we're standing at a crossroads. There's this incredible pull of AI-driven euphoria on one side, and on the other, these daunting market metrics and a deteriorating economic outlook. Something has to give, doesn't it? It feels unsustainable.

Mask

"Unsustainable" is the word. Positive sentiment is overriding negative fundamentals, but that never lasts. Gravity always wins. When the fundamentals reassert themselves, people who ignored the metrics are going to get hurt. We just need to be positioned for the aftermath.

Aura Windfall

This conversation about 'speculative fervor' reminds me so much of stories from the past. To truly understand this moment, I believe we have to look back. The dot-com bubble of 2000 feels like a powerful echo of what we might be experiencing now.

Mask

It’s more than an echo; it's a direct parallel. From 1995 to 2000, the Nasdaq surged over 400%. Why? Because investors threw money at anything with a ".com" in its name, regardless of revenue or strategy. It was a classic case of hype completely detached from reality.

Aura Windfall

It's incredible to think about that energy. Companies with no profits, sometimes no revenue, seeing their stock prices double in a single day after an IPO. There must have been such a feeling of endless possibility, a belief that a 'new economy' had arrived that didn't follow the old rules.

Mask

The 'new economy' argument is the oldest justification for a bubble. People thought the internet changed the rules of valuation. It didn't. The fever broke in March 2000. The Nasdaq peaked above 5,000, and then reality hit. It wasn’t a slow decline; it was a collapse.

Aura Windfall

And what was the trigger? Was it one single event, or a collection of things that finally pricked the balloon? It's so important to understand the catalyst, to see what we can learn about our own time and what we should be watching for.

Mask

It was a combination punch. The Fed started hiking interest rates, big tech companies issued profit warnings, and investors started rotating out of tech. The index fell nearly 40% in just eight weeks. By late 2002, it had lost almost 80% of its value. Total devastation.

Aura Windfall

Eighty percent. Let's just sit with that for a moment. Imagine the dreams and life savings that were caught in that downfall. It took over 15 years for the Nasdaq to reach that peak again. It’s a profound lesson in how long the journey back can be.

Mask

And it's not the only example. Go back to the "Nifty Fifty" bubble in the early 1970s. A group of so-called 'one-decision' stocks—buy them and never sell—that were considered infallible. Companies like Polaroid and Xerox. They were market darlings, just like the dot-coms, just like today's AI leaders.

Aura Windfall

The 'infallible' stocks. That's such a seductive idea, isn't it? The belief that you've found something so perfect it's shielded from risk. But what I know for sure is that nothing is truly shielded from the cycles of the market and human emotion. How did that end?

Mask

It ended the same way. The 1973-74 market crash shattered them. Many of those 'infallible' stocks lost over 90% of their value and never recovered their former highs. The lesson is always the same: valuation untethered from earnings is a recipe for disaster. History is ruthless about this.

Aura Windfall

And this pattern of new technology driving speculation seems to be a recurring theme. You mentioned the dot-com bubble with the internet, and the article also points to the 1920s American stock bubble leading up to the crash of 1929. There’s a timeless human element to this.

Mask

Of course. New tech creates a compelling narrative. The story is always, 'This time it's different.' People fall in love with the story and forget to do the math. The 1920s had the automobile and the radio. The 90s had the internet. Today, it’s AI. The technology changes, the human behavior doesn't.

Aura Windfall

That is the truth at the heart of it all. We get swept up in the story, the vision of the future. It makes me wonder, are we in the middle of writing a similar story for ourselves right now, with AI as the central character?

Mask

We are. And most people won't realize what chapter they're in until it's over. They're celebrating the rising action, completely unprepared for the climax and the falling action that inevitably follows. That's why understanding this history isn't academic; it's a strategic necessity.

Aura Windfall

This brings us to the heart of the debate today. On one side, we have this compelling history of bubbles, a clear warning sign. But on the other, there are many who believe these high valuations are justified. They see something different this time, particularly with AI.

Mask

Of course they do. There's always a bull case. The argument is that if AI adoption truly revolutionizes the economy, then the earnings growth in the coming years could be so substantial that it makes today's prices look cheap. It's a bet on a massive, unproven productivity boom.

Aura Windfall

It's a powerful 'what if.' It asks us to have faith in future innovation. I can feel the pull of that optimism. BNY, for instance, believes AI's role will surpass even the internet or mobile phones. They're forecasting S&P 500 earnings growth of 10-15% in 2025.

Mask

Forecasts are just opinions with numbers. Deutsche Bank has a target of 7,000 for the S&P 500. It's a game of expectations. But look at someone like Scott Wren from Wells Fargo. He admits valuations are 'pretty lofty' and says determining a fair value is trickier than ever. That's telling.

Aura Windfall

So even within the optimistic camp, there's a sense of complexity and perhaps a bit of unease. Wells Fargo is actually recommending that clients reduce their holdings in some sectors, anticipating a slowdown before things pick up again. That sounds like a very cautious form of optimism.

Mask

It's hedging. They want to be right either way. But the real conflict in strategy is deeper. It's about concentration versus diversification. The market itself is telling you to concentrate. A tiny fraction of stocks, the market leaders, generate almost all the returns. It's the Pareto Principle in action.

Aura Windfall

The Pareto Principle, the 80/20 rule. The idea that a vital few are responsible for the majority of the results. So you're saying that instead of buying the whole haystack, as Jack Bogle advised, we should be looking for the sharpest needles?

Mask

'Buy the haystack' is a marketing trick to sell you mediocrity. Index funds are designed to track the market, not beat it. Charlie Munger said, 'The idea of excessive diversification is madness.' Why would you dilute your best ideas with your 50th best idea? It makes no sense.

Aura Windfall

That's a very provocative stance. It challenges the foundational advice given to so many investors for decades. But it speaks to a belief in identifying true greatness and having the courage to invest in it with conviction, like Apple or Nvidia, which you mentioned earlier.

Mask

Exactly. Research shows the top 1% of stocks globally account for the majority of net wealth creation. The goal isn't to own everything; it's to own the best. Find companies with strong cash flow, rapid asset growth, and high R&D spending. That's where you find sustainable, outsized returns.

Aura Windfall

Thinking about all this uncertainty and these conflicting views, it makes me wonder about the tools we have to navigate it. It feels like we're trying to see through a fog. How is modern technology changing our ability to even identify a bubble as it's forming?

Mask

The tools are getting exponentially better. We're now using deep learning models to predict market bubbles. These systems can analyze vast, non-linear datasets—news headlines, financial reports, social media—and detect complex patterns that no human ever could. It's about finding the signal in the noise.

Aura Windfall

That is fascinating. So, AI can look at the emotional tone of the market? What I find so powerful is the idea that a significant factor in bubbles is investor sentiment. It's our collective optimism or fear that pushes prices beyond reason. Can AI actually measure that?

Mask

Yes, through sentiment analysis. AI models like BERT and GPT process millions of social media posts, news articles, and forums in real-time. They gauge public opinion, categorizing it as positive, negative, or neutral. This gives a live reading of the market's psychological state, which is a huge predictive edge.

Aura Windfall

It's like having a real-time map of the market's heart and mind. I can see how that would be invaluable. A study from the University of California found this was a significant predictor of stock movements. Does this mean we can prevent crashes?

Mask

Prevent? No. Profit from? Absolutely. For hedge funds and institutional investors, this is about risk management and identifying opportunities. If you can spot the signs of a bubble early, you can take preventative steps or position yourself for the inevitable correction. It's about being faster than the herd.

Aura Windfall

But what about the herd? The everyday retail investors? Is there a danger that this technology could be misleading? Sentiment can be fickle, and during speculative periods, it might just reflect the bubble's growth rather than providing a warning against it. There's a risk of amplifying herd behavior, isn't there?

Mask

That's the limitation. There's noise in the data—sarcasm, irony. And overreliance on sentiment alone is a trap. That's why the most sophisticated approaches are hybrid models. They combine traditional methods like ARIMA for trend analysis with deep learning like LSTM for short-term patterns. It's art and science.

Aura Windfall

So as we look toward the future, say into 2025, what is the prevailing feeling? With all these powerful tools and historical lessons, are we heading for a soft landing or something more turbulent? What can we, and especially our listener 老王, hold onto?

Mask

The market is front-running the economy. After a huge 53% jump in the S&P 500 over the last two years, the consensus is for a re-acceleration in 2025. But this expectation is already priced in. The real question is whether the expected earnings growth will actually materialize to support these valuations.

Aura Windfall

So there's a gap between hope and reality that needs to be closed. Marko Kolanovic at J.P. Morgan framed it beautifully. He wonders if softening inflation and demand will be welcomed by investors, or if it will signal a slide toward recession, causing worry or even panic.

Mask

Panic is opportunity. The smart strategy in this environment is to focus on a balanced, risk-managed portfolio. That doesn't mean diversifying into mediocrity, but being selective. Focus on resilient sectors like technology and healthcare, and prioritize companies with robust operational frameworks and proven scalability. Don't get caught in the hype.

Aura Windfall

That feels like truly empowering advice. It's not about predicting the future perfectly but about building a strong vessel to navigate whatever comes. It's about being proactive, flexible, and grounded in a clear strategy. What a powerful way to approach the uncertainty ahead.

Aura Windfall

And that's the end of today's discussion. We've journeyed from the 'Terrific 20' to the dot-com era, and into the future of AI in investing. What I know for sure is that staying informed and centered is your greatest asset. Thank you for listening to Goose Pod.

Mask

The key takeaway is this: valuations are stretched and speculation is rampant. History provides a clear warning. Be patient, be strategic, and don't follow the herd over the cliff. Thank you for listening to Goose Pod. See you tomorrow.

## Stock Market Bubble Concerns Broaden Beyond "Magnificent 7" **News Title:** Strategists see a stock bubble — and it’s not the Mag 7’s fault **Publisher:** Business Insider **Author:** William Edwards **Publication Date:** August 2, 2025 This report from Business Insider highlights growing concerns among some market strategists that a stock market bubble is forming, with the current "frothy" valuations extending beyond the dominant "Magnificent Seven" (Mag 7) stocks to a broader group of companies. ### Key Findings and Conclusions: * **Broadening Valuations:** While the "Magnificent Seven" (Apple, Amazon, Microsoft, Meta, Alphabet, Nvidia, and Tesla) have seen their valuations rise, their 12-month forward price-to-earnings (PE) ratios are still lower than in mid-2024, mid-2023, and 2020. * **"Terrific 20" Surge:** A new group of 20 stocks, dubbed the "Terrific 20" by Arun Sai, a senior multi-asset strategist at Pictet Asset Management, are experiencing a surge in forward PE ratios. These valuations are now topping levels seen earlier this year and are higher than at any point over the last decade. * **Sector Diversification:** The "Terrific 20" comprises companies from diverse sectors, including financials, energy, industrials, consumer, and legacy tech. This indicates a broadening market participation beyond Big Tech. Examples include Broadcom, Walmart, JPMorgan, Berkshire Hathaway, Visa, and GE Aerospace. * **Speculative Fervor:** The rise in valuations is primarily driven by multiple expansion rather than earnings growth, which some strategists interpret as a sign of "speculative fervor" and an overheated investor sentiment. * **Historical Parallels:** Strategists like Richard Bernstein, founder of Richard Bernstein Advisors, draw parallels to the "Nifty Fifty" bubble of the 1960s and the dot-com bubble of 2000, suggesting a market solely focused on emerging technology. * **Signs of Excess Optimism:** Bernstein points to increased trading of leveraged ETFs, zero-day options, and low dollar-value stocks as indicators of excess optimism. * **Divergent Investor Advice:** Bernstein advises traders to "take a deep breath" and recognize the speculative fervor, while suggesting investors who are "patient" will find significant opportunities in the aftermath. * **Cautious Warnings:** While most Wall Street strategists do not foresee a dramatic pullback, some are issuing quiet warnings about potential market swings in the coming weeks. Ulrike Hoffmann-Burchardi, CIO Americas and global head of equities at UBS Global Wealth Management, recommends "capital preservation or phasing-in strategies" to navigate near-term volatility. * **AI Trade Potential:** Despite concerns, the AI trade may still have room to grow as the technology evolves, with companies like Meta and Microsoft reporting strong earnings and positive forward guidance. ### Key Statistics and Metrics: * **Mag 7 Forward PE Ratio:** Down from mid-2024, mid-2023, and 2020 levels. * **"Terrific 20" Forward PE Ratio:** Surging and topping levels seen earlier this year, and higher than any point over the last decade. * **"Terrific 20" Market Share:** Accounts for approximately 17% of the MSCI US index. * **Mag 7 Market Share:** Accounts for approximately 33% of the MSCI US index. ### Important Recommendations: * **For Traders:** "Take a deep breath and kind of look at what's going on and realize that everybody's in this huge speculative fervor." * **For Investors:** Be "patient" as "reckless abandon is going to leave you with so many opportunities." * **General Investor Caution:** Be mindful of potential market swings and consider capital preservation or phasing-in strategies. ### Notable Risks or Concerns: * **Overheated Sentiment:** Valuations rising due to multiple expansion rather than earnings growth suggests investor sentiment may be excessively optimistic. * **"Speculative Fervor":** The market is characterized by a high degree of speculative activity. * **Historical Bubble Parallels:** Comparisons to past market bubbles raise concerns about a potential correction. * **Concentration Risk:** Despite broader participation, the market remains relatively concentrated. * **Near-Term Volatility:** Investors should be prepared for potential market swings in the coming weeks. In summary, while the "Magnificent Seven" are no longer the sole drivers of rising stock valuations, a broader segment of the market, exemplified by the "Terrific 20," is experiencing significant multiple expansion. This shift, coupled with signs of speculative fervor and historical parallels to market bubbles, has prompted some strategists to issue cautious warnings about potential market volatility and the sustainability of current valuations.

Strategists see a stock bubble — and it’s not the Mag 7’s fault

Read original at Business Insider →

Some strategists see a stock-market bubble brewing — and it's not the Magnificent 7's fault this time Traders work on the floor of the New York Stock Exchange May 7, 2014.REUTERS/Brendan McDermid Stock valuations are rising. Rather than the Mag Seven, look at the "Terrific 20."The Terrific 20 stocks includes diverse sectors, indicating a broadening market beyond Big Tech.

But some warn of "speculative fervor," given that price multiples, not earnings, are on the rise.Stock valuations are getting frothy again, but this time, it's not all Big Tech's fault.Yes, valuations of the Magnificent Seven stocks — Apple, Amazon, Microsoft, Meta, Alphabet, Nvidia, and Tesla — are back up after since bottoming in April.

Yet, the group's 12-month forward price-to-earnings ratio is still down from mid-2024, mid-2023, and 2020 levels.Meanwhile, forward PE ratios on the next 20 stocks in the S&P 500 continue to surge, topping levels seen earlier this year. Their valuations are also higher than at any point over the last decade.

Arun Sai, a senior multi-asset strategist at Pictet Asset Management, calls the group the "Terrific 20."Pictet Asset ManagementSome may see the rising forward expectations for a widening number of stocks as a sign of health, as the rally extends beyond just the most popular stocks.But when stocks rise because of multiple expansion instead of earnings growth, it may be a sign that investor sentiment is becoming overheated."

These companies span a broad set of sectors more closely tied to the real economy, including financials, energy, industrials, consumer, and legacy tech," Sai wrote on Tuesday. "Names like Broadcom, Walmart, JPMorgan, Berkshire Hathaway, Visa, and GE Aerospace now account for ~17% of the MSCI US index, compared to 33% for the Mag 7."

"Broader participation is a positive — when it's driven by earnings," he continued. "But when more of the market gets expensive, the narrative that 'US equities aren't overpriced, just a few exceptional companies are' becomes harder to justify."Sai compared the current environment to the so-called "Nifty Fifty" bubble in the 1960s.

Richard Bernstein, the founder of Richard Bernstein Advisors and former chief investment strategist at Merrill Lynch, said in June that there are parallels to another famous episode of euphoria—the dot-com bubble of 2000—as the market seems solely focused on an emerging technology.On Wednesday, Bernstein reiterated his skepticism of the rally, noting that the market is still relatively concentrated even if valuations are surging among more than just the top seven stocks.

Trading of leveraged ETFs, zero-day options, and low dollar-value stocks is also picking back up, signs of excess optimism, he said."If you're a trader, I think you should take a deep breath and kind of look at what's going on and realize that everybody's in this huge speculative fervor," Bernstein told Business Insider.

"But if you're an investor and you want to be a little patient, I don't think it gets much better than this.""The reckless abandon is going to leave you with so many opportunities," he continued. "It's going to be like post-2000."Most Wall Street strategists don't see a dramatic pullback ahead, and few have made direct comparisons to prior bubble episodes.

In recent days, however, some have extended quiet warnings to investors about the market's near-term direction.Ulrike Hoffmann-Burchardi, CIO Americas and global head of equities at UBS Global Wealth Management, said in a note on Tuesday that "investors should be mindful of potential market swings in the coming weeks," and that "capital preservation or phasing-in strategies can be effective in navigating near-term volatility."

While valuations are no doubt extended, there's no guarantee a major market top is near, and the AI trade may have room to run as the technology evolves.Meta and Microsoft, for example, reported strong earnings beats this week and gave positive forward guidance, causing shares to soar. Investing Stock Market CrashRead next

Analysis

Conflict+

Related Info+

Core Event+

Background+

Impact+

Future+

Related Podcasts

Global markets fall and gold hits record high

12/8/2025

Is the Stock Market Going to Crash in 2026? 2 Historically Flawless Indicators Paint a Clear Picture. | The Motley Fool

11/13/2025

View All Podcasts →