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Will the market take a tumble soon? Or will it power on? Lots of people have opinions on this, although in reality none of us actually knows what will happen next in the stock market. But with the S&P 500 riding high, many investors remain bullish about where we may go from here.
It is not just the S&P 500.
The Dow Jones Industrial Average and Nasdaq indexes both closed at record highs yesterday (28 October), alongside the S&P 500. On this side of the pond, the FTSE 100 has repeatedly hit new all-time highs this year – including today (29 October).
Does that sound like the sort of market action that precedes a crash? Some investors believe so, but others argue that ‘this time it’s different’.
Most stock market bubbles that end up popping involve people claiming that this one is different to all the rest.
But – might they be right this time?
It is easy to see echoes in today’s market of another soaring market a quarter of a century ago: the dotcom boom. That ended in a crash.
However, when people say that things are different this time, they do have a point.
During the dotcom era, the market had attracted large sums of money into many companies that had little or no revenues. In some cases, they scarcely even had a business plan beyond stuffing the word ‘Internet’ into as many press releases as possible. Hello, pets.com, boo.com and many more.
By contrast, 2025’s soaring S&P 500 has been driven by companies like Nvidia (NASDAQ: NVDA). The chip company is already enormously profitable, established for decades and has a large customer base.
There’s a lot of liquidity
That is not the only difference between the current market and some previous bubbles.
Sometimes, there is a lack of spare cash and nervous investors withdraw funds from the market in part because they need the money. Now we are in essentially the opposite situation. For some years the markets have been awash with liquidity as investors seek somewhere to stash their cash.
The huge amount of available liquidity means that, in my view, the market continues to be propped up by easy money looking for a home. Historically such situations have made investors less picky than when liquidity is tight.
Lots of alarm bells
Still, from the soaring gold price to the increasingly convoluted deal structures we are seeing in everything from car finance to the AI supply chain, there are plenty of indicators flashing that have often been associated with a crash.
The S&P 500 looks highly valued to me. Nvidia is a case in point.
Is it a proven, massively profitable business? Yes. Does AI present it with incredible opportunities? So far, yes – and they may get even better.
Does that justify a price-to-earnings ratio of 59 and a market capitalisation of over $5trn?
Personally, I do not think so.
From a potential slowdown in AI spending after initial installations to geopolitical tensions and export bans, Nvidia faces plenty of risks. Its current price does not reflect them properly in my view.
The fundamentals of good investing remain the same. I have no plans to buy Nvidia stock soon – or any S&P 500 share, come to that.