A number one Wall Avenue strategist is performing some calculations concerning the complete worth of U.S. shares rocketing to a staggering 363% of GDP as of final Friday, blowing previous the notorious 212% mark reached through the dotcom bubble. It’s a warning in the event you suppose it’s unsustainable, however David Kelly, chief international strategist for JP Morgan Asset Administration, notes that the bull market is really epic, “stretching, with some interruptions, all the way in which again to the Nineteen Eighties.”
The market’s seemingly unstoppable rise—pushed largely by feverish enthusiasm for synthetic intelligence, just a few mega-cap tech shares, and lofty price-to-earnings (P/E) multiples—has set off a heated debate about whether or not traders are actually perched on the sting of one other historic bubble.
The S&P 500’s relentless march has led to a number of the costliest inventory costs on report. As lately as August, Fortune‘s Shawn Tully reported, the index reached a report shut at 6,501, sending its trailing P/E ratio (utilizing precise GAAP earnings, not wall-street projections) to 30x. Tully famous that this territory has been seen solely throughout uncommon moments in market historical past, together with the tech frenzy from 1999 to 2002, and briefly in latest crises when earnings collapsed. For context, traders had been getting $5 of earnings for each $100 invested as lately as 2022; right now, they’re getting simply $3. What’s hanging is that earnings themselves have barely saved up with inflation, which means that the epic climb in inventory costs has come nearly totally from surging multiples, relatively than company revenue development.
Kelly provided his personal calculation in a Monday analyst notice, “Checking the Foundations of a Roaring Bull Market.” Till the beginning of this epic, multi-decade rally, the worth of all U.S. equities had averaged 72% of GDP between the third quarter of 1955 and the third quarter of 1985. What has transpired since has been exceptional, Kelly writes, and “the most important a part of market positive aspects haven’t come from financial development however relatively from a rising revenue share of GDP and better P/E multiples.” Kelly provides that the “scaffolding supporting this roaring bull market” is “more and more lofty”—and probably unsustainable.
Kelly’s thesis suits with warnings from a number of commentators a few “financialization” of the U.S. financial system for the reason that age of Ronald Reagan within the Nineteen Eighties. Monetary Instances columnist Rana Foroohar, then of Time, wrote a e book on the topic referred to as “Makers and Takers,” and touched on the proof all over the place within the zeitgeist that monetary efficiency had turn into indifferent from fundamentals. “The Large Quick,” Adam McKay’s adaptation of the Michael Lewis non-fiction basic, was a key piece of proof. These dynamics had been memorably captured on cinema through the precise Nineteen Eighties, in Oliver Stone’s basic “Wall Avenue,” which included the memorable line: “Greed is Good.”
AI hype: bubble or breakthrough?
A lot of this valuation mania is targeted on AI and tech. The latest launch of GPT-5, greeted as a possible revolution, didn’t reside as much as the wildest expectations, fueling tech-sector jitters and a $1 trillion sell-off within the S&P 500 through the summer time. Veteran AI critic Gary Marcus factors to the dismal 95% failure fee of generative AI tasks in trade and a market psychology harking back to earlier manias—the place “sensible folks get overexcited a few kernel of fact” and disconnect from actuality. Apollo World Administration’s chief economist Torsten Slok and others have argued that right now’s S&P 500 leaders, particularly AI-driven giants, are much more overvalued relative to their fundamentals than their Nineteen Nineties dotcom counterparts.
Information middle investments have soared—a lot in order that their contribution to GDP development in early 2025 has matched that of all client spending, elevating considerations that firms are overcommitting to a development that won’t ship near-term earnings. AI unicorn valuations have ballooned to $2.7 trillion, however with restricted industrywide income and earnings, elevating worries about whether or not the increase is sustainable.
Federal Reserve chair Jerome Powell lately advised reporters that the central financial institution was seeing “unusually giant quantities of financial exercise” associated to the buildout of AI infrastructure within the type of knowledge facilities. In fact, the multiples are most outsized within the tech sector, particularly the AI shares driving the closely concentrated S&P 500, such because the world’s most useful firm, Nvidia.
Weakening financial foundations
Worryingly, these report highs are being notched towards a backdrop of tepid financial development and indicators of labor market hassle. July’s jobs report confirmed simply 73,000 new hires, whereas the previous three months noticed solely 106,000 web new jobs—a fraction of final yr’s tempo. GDP development is languishing at an annualized fee of 1.75% for the primary half of 2025, down sharply from late 2024 and nicely beneath the degrees wanted to tame the swelling federal debt. Such sluggish development additional undermines the case for present fairness valuations, which have been pushed nearly solely by rising multiples, not improved company efficiency.
For bizarre traders, this implies a really expensive catch: inventory costs are excessive as a result of they’ve bid up the identical greenback of company revenue to ranges seen solely within the wildest days of the dotcom or pandemic run-ups. Because the bull market floats greater and better above underlying financial development, seasoned strategists suggest getting ready portfolios for turbulence by diversifying past U.S. mega-caps, rising publicity to worldwide shares, core fastened earnings, and options.
Kelly is sanguine about what could occur, reasoning that the bull market has run longer than anybody might ever anticipate, so prognosticating is tough at this level, whereas advising diversification as a sound technique. Nonetheless, the info is exceptional. Between 3Q55 and 3Q85, he finds, the S&P500 supplied an 8.8% complete return annually, on common, together with dividends. “Within the 40 years since, it has returned an astounding 11.6% per yr.”
For this story, Fortune used generative AI to assist with an preliminary draft. An editor verified the accuracy of the knowledge earlier than publishing.
