Forget the 'AI Bubble'. Are We Actually in an Everything Bubble?
If you've tuned into financial media over the past year, there's a good chance you've heard an economist or other expert proclaiming that the stock market is entering a bubble. While television's pundits may seem like alarmists, they're not alone.
Everyone from JPMorgan Chase CEO Jamie Dimon to Amazon founder Jeff Bezos seems to agree that AI stocks are barreling towards — if not already in — a bubble. Historically high valuations have earned this corner of the market more than a few comparisons to the dot-com bubble of a generation ago.
"There's a lot of speculation in the stock market that looks quite a bit like the previous tech bubble in the late 1990s," says David Rosenberg, founder of Rosenberg Research. "The stock market has been caught in this generative AI frenzy," he says.
The result, according to Rosenberg, is the expectation of accelerating profits and economic growth. That enthusiasm has grown beyond AI stocks, though. The market has been on a tear since April, with all of the S&P 500's 11 sectors up on a year-to-date basis.
But beyond stocks, prices — from housing to hamburgers — have climbed to record levels, suggesting this could be an everything bubble.
What's fueling the surge?
Economies typically don't act like this. Prices for one type of goods or services usually rise at the expense of another. But the current marketplace seems to be defying the odds, and there isn't an easy answer why.
Everything from gold and silver to car prices, rent and credit card interest rates are near historic highs. All the while, the S&P 500 continues to set new records.
According to Rosenberg, part of the reason it's so hard to determine why is that there isn't a single driving force. "Each individual asset class is responding to different variables," he says. Here are a some of those factors, and how they are driving up prices across the economy.
Wall Street's optimism lifts stocks
Comparisons to the dot-com bubble are inevitable, but economists say there are key differences about today's market buoyancy. For one, the companies spending prodigiously on AI aren't start-ups burning through venture capital. Instead, they're well-established, mega-cap companies cranking out profits that routinely meet or beat analysts' expectations.
Even if those expectations aren't met, these are still companies with strong earnings and revenue streams, according to Rob Haworth, senior investment strategy director U.S. Bank Asset Management Group. "It's early, I think, for 'everything bubble' talk," he says. "We're getting a push up in many assets, but it's being followed by fundamentals," Haworth says, including companies operating outside of AI.
Some of this reflects the ripple effect that AI spending has on other sectors of the economy: Haworth points to energy and utility stocks, which stand to benefit from data centers' enormous electricity demand. Some market optimism is fueled by the promise of future innovations, such as the prospect of AI unlocking discoveries in biopharmaceuticals and improving medical diagnostics — an evolution Haworth says is already beginning to take place.
Despite that optimism, Haworth admits that risks remain, particularly regarding the Trump administration's policies. "What we're most worried about is if tariff implementation significantly changes consumer behavior or significantly increases corporate costs," he says.
Nevertheless, the Buffett Indicator — which measures the stock market's total valuation relative to U.S. GDP — has also reached an all-time high. In other words, the indicator is now higher than it was preceding the dot-com crash of 2000.
Immigration and trade policies are raising prices
The Trump administration's trade and immigration policies have already sown chaos in boardrooms and balance sheets, with the government's immigration crackdown being blamed for labor shortages in industries spanning agriculture, hospitality and construction. Fewer workers means companies have to pay more to attract scarce labor or invest in automation. Those higher costs get passed down through the supply chain and, ultimately, to consumers.
That's on top of tariff costs. Although President Trump's push for import duties on everything from motors to movies has only been partially successful, the abrupt reversal of a decades-long free trade agenda has thrown a wrench into the operations of American companies both large and small.
Nowhere, perhaps, is this more evident than in the housing market. A ratio of the S&P CoreLogic Case-Shiller U.S. National Home Price Index to income has risen sharply, passing the high-water mark previously reached in 2006 amid the housing bubble. Homes today cost roughly seven times Americans' median household income — and mortgage rates today are considerably higher than they were in February 2022, the first time this ratio hit a level of seven.
That's partly attributable to tariffs, which weigh heavily on the construction industry, imposing higher prices on everything from cement, lumber and copper wiring. Combined with higher labor costs resulting from the administration's immigration policies, home prices have soared out of reach for many Americans.
Residential real estate is a tremendous economic engine, generating demand for everything from property insurance to patio furniture. A frozen housing market creates a chill over a much greater swath of commercial activity. "Housing is still the quintessential leading indicator… and nobody talks about the fact that housing prices are starting to roll over," Rosenberg says. "That's the canary in the coal mine."
Food, housing and credit card debt surge for everyday Americans
Some of the run-up in prices across a wide spectrum of assets can be attributed to the concentration of wealth among affluent Americans, according to Mark Zandi, chief economist at Moody's Analytics. "The wealthy are very, very wealthy, and there's nowhere else for them to go," he says.
Along with piling into stocks, these wealthy investors are diversifying into alternative assets. That includes private equity and private debt — asset classes that often preclude retail investors. They're also investing in gold and other precious metals, which are outperforming the S&P 500 this year by a wide margin.
Meanwhile, widening inequality in the face of climbing food and housing costs could push the growing U.S. economy closer to an inflection point, as middle-class and lower-income Americans display increasing financial strain.
The cost of meat, poultry, fish and eggs rose 5.6% in August from the year prior, while prices of imported goods like coffee — which jumped an eye-opening 3.6% in a month and is up almost 21% from a year ago — have seen some of the sharpest increases. Even domestically-produced foods, especially ones that rely heavily on immigrant labor to harvest or produce, have risen substantially. Yale University’s Budget Lab estimates that if tariffs remain at their current levels, the cost of fresh produce will rise by more than 4% in the near term.
Ballooning levels of credit card debt and delinquencies have raised concerns about a debt bubble. Americans hold a near-record of more than $1 trillion in outstanding credit card debt, suggesting that many have turned to borrowing to fill the budget gaps. Despite the Federal Reserve's new rate-cutting cycle, its impact has been smaller-than-expected for mortgage rates, while credit card interest rates remain near record highs.
Evidence is mounting that more Americans' financial stability is cracking under the strain of their debts, particularly since the Department of Education resumed collections activity — including wage garnishment — on loans in default. Data from credit reporting bureau TransUnion found that the number of seriously delinquent student debtors who fell more than 60 days behind on personal loan payments jumped by 186% between December and June, while those who fell behind by more than 90 days on credit card bills during that same time period shot up by a whopping 479%.
As the dollar drops, gold, silver and crypto push record highs
While the value of numerous assets continue pushing all-time highs, it's quite the opposite for U.S. currency. The value of the dollar has dropped by nearly 10% since Trump took office, which economists attribute at least partially to his administration's policies.
Although a less-expensive dollar sounds bad, it's good for certain companies and sectors. "It's particularly good for service exporters," Harvard professor and former chief economist at the International Monetary Fund Kenneth Rogoff told Politico. This is one reason why big tech companies are raking in earnings; their international sales, when converted from local currency, are a higher number of dollars than they would have been if the greenback was stronger.
The U.S. dollar's decades-long status as the global de facto reserve currency is also being rethought, as other countries consider the implications of a more isolationist, inward-looking United States. Zandi says that other countries' central banks buying up stocks of gold bullion is a big reason why gold prices have risen to record highs. "Central banks are diversifying their reserves… out of dollars and into gold," he says.
The price of gold hit $4,000 for the first time last week and continues to rise. The yellow metal is a traditional hedge against economic uncertainty, serving as a store of value and a safe-haven asset in the event of a downturn, and central bank-buying has accelerated the precious metal's record gains this year. Right behind gold, the price of silver also hit an all-time high in October, surpassing its previous record set in 1980.
While some investors are turning to precious metals to avoid what they perceive as a stock market bubble, others believe this could be contributing to a gold bubble. Meanwhile, as other countries stockpile bullion, Trump is turning towards bitcoin, is only 11% off of its all-time high.
The administration's agenda to deregulate and invest in digital assets is a major force behind the meteoric rise in bitcoin and other cryptocurrencies this year. A push to integrate cryptocurrency into the financial mainstream, including a plan to establish a strategic bitcoin reserve, lends credibility to an asset class that otherwise remains largely speculative.
What should investors do?
Navigating a market that seems to be going nowhere but up can be challenging. While experts broadly agree that what goes up must come down, no one knows exactly when stocks will peak — or what happens after.
"Markets that are speculative and frothy can go on for a long time," Zandi says. "But the higher the market grows, the more vulnerable it becomes."
While companies' robust returns make a legitimate case for high valuations, Zandi suggests that some investors could be donning rose-colored glasses. "Speculation is just creeping in," he says. "That's not atypical, [but] it feels like investors are getting over their skis."
Getting out too early can mean forfeiting gains, but trying to time the market is a tightrope walk without a net. This puts ordinary Americans who depend on market returns to grow their nest eggs in a tough spot.
But there is one thing investors can do, according to Rosenberg. "It's very important right now, if you haven't already done so, to rebalance your portfolio." While 401(k) savers have enjoyed impressive gains over the past few years, the way those gains are reinvested is likely to leave them overexposed to the high-growth tech companies at the forefront of the burgeoning AI bubble — and the most likely to correct when market sentiment shifts.
The end of a bull market is potentially the most lucrative and riskiest for investors. Rosenberg sounds a note of caution, using the analogy of a rising market as a slow-moving escalator, but a falling market as a stomach-dropping elevator.
"Bubbles go further than you think, but they never correct by going sideways," he says.
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