Wall Street's frothy summer looks bubbly, despite Trump's trade war
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Sarah Grillo/Axios
After nearing a bear market just three months ago, stocks are expensive again — trading above the value of their underlying assets, with analysts saying we're heading down a frothy path.
Why it matters: Stocks might be rallying on vibes rather than fundamentals, while ignoring headwinds like tariffs. Stocks were only slightly down early Monday despite the administration announcing a 30% tariff on the European Union on Saturday.
- That could be a flashing warning sign while markets are "complacent" and money managers are on vacation.
What they're saying: "Markets can stay overbought for longer than many expect because greed tends to outlast fear," wrote Bank of America's Michael Hartnett in a recent note.
Zoom out: The S&P 500 is trading at 22 times forward earnings, above the historic average of 18.
- The current earnings yield, 4.5%, is near its lowest level relative to long-term real yields since the tech bubble.
- Extreme greed is driving the market, according to CNN's Fear & Greed index.
- The Relative Strength Index, a measure of momentum, has hit above 70 several times this month, which is overbought territory.
Zoom in: Here are some other "toppy" signals we're watching:
- The market was up in a week marked by President Trump reigniting the trade war.
- Nvidia created and entered the $4 trillion club.
- The VIX, a measure of volatility, hit its lowest level since February.
- Assets under management in leveraged ETFs, which are riskier investments, hit a record high of $135 billion.
- Business travel is so back, according to Delta Air Lines.
- The president is posting about Nvidia's share price.
- Meta offered a $200 million+ salary for top AI talent.
- Jeff Bezos had a $50 million wedding and sold $666 million worth of Amazon stock.
- Our own anec-data: Your Markets author is experiencing a slew of invites to international bachelorette trips, after a few blissful months of pivots to domestic travel due to economic fears.
Between the lines: If prices run away from earnings, "the market is basically saying we're gonna grow into these valuations," Morgan Stanley Investment Management's chief investment officer Jim Caron tells Axios.
The intrigue: Regarding the valuation issue, some analysts say that's not the best metric anymore.
- The index is of higher quality today than it has been historically, with record corporate buybacks to boot, making valuations defensible, according to Bank of America's Savita Subramanian.
💠My thought bubble: A recent rewatch of "The Big Short" was a good reminder in this TACO moment that it's not always what you don't know that hurts you as an investor.
- It's what you think you're certain of.
