Despite concerns of a potential bubble in the stock market, experts are pointing to two key factors that suggest the market may not be in bubble territory just yet.
One key indicator of a bubble is an IPO frenzy, which was seen in both 2021 and 1999 during the dot-com bubble. However, in 2024, the IPO market has been relatively quiet, with only 20 companies going public so far this year. This lack of IPO activity indicates that investors are more focused on quality and profits rather than speculative growth, which is not typical behavior during a bubble.
According to UBS’s CIO for global wealth management in the Americas, Solita Marcelli, the performance of newly public companies in 2024 has not seen the same soaring one-day returns as seen in previous years. This suggests that investors are more cautious and selective in their investments, further indicating that the stock market may not be in a bubble.
Another key factor that is missing from the current stock market environment is excessive leverage. Typically, during a bubble, investors take on high levels of leverage to boost their returns. However, data from TS Lombard shows that margin debt has only risen modestly in recent months and is still down significantly from its record high in 2021. This lack of excessive leverage suggests that speculation is not driving the current rally in the stock market.
Overall, experts believe that the stock market may continue to trend higher throughout 2024 due to a strong economic backdrop and tailwinds from AI. While concerns of a bubble persist, the absence of an IPO frenzy and excessive leverage indicate that the market may not be in bubble territory just yet.
