The shares that have risen to new record heights last week when the Federal Reserve delivered its first reduction of the year and nourished what some strategists describe as a 'honeymoon' in the short term.
Optimism around easier financial circumstances and the artificial intelligence tree has driven shares higher and defies the reputation of September as a weak month for shares.
Strategist of the Bank of America, Michael Hartnett, said in a note to customers that if this is a bubble, it might not be ready to burst. His team studied more than a century of Equity Manias and discovered that bubbles from the past usually achieved average profit of 244% of trough to peak. Against that measure, the “Magnificent Seven”, 223% since their lows of March 2023, can still have room to climb.
That view was reinforced by Jeff Krumpelman, main investment strategist at Mariner Wealth Advisors, who argued that AI-driven productivity gain and strong profit perspectives justify higher multiples.
'We are in the very early innings [of AI]”Kruptelman told Yahoo Finance.” It creates so many opportunities and also stimulates productivity growth for general income and the health of our labor market in general. “
Krumpelman noted that the valuation of the S&P 500 (^GSPC), about 23 times forward income, is high according to historical standards, but he argued that comparisons with earlier cycles do not tell the full story.
“This is not the S&P 500 of your grandfather,” he said. “Return at equity and profit margins were much lower in the time we were not [oriented] In those communication services and technology cow names. “
Yet he warned against overheating: “What would worry me is if we get a real 'melt-up' where people are a kind of 'gaga' about cutting the Federal Reserve, and it brings us to even higher levels. That would make me nervous.”
That unrest is shared by other market veterans.
Ed Yardeni, President of Yardeni Research, recently warned that monetary policy could easily cause a destabilizing rally in shares without tackling structural issues, such as the shortage of America's labor supply. He argued that lowering the rates in a still healthy economy runs the risk of feeding speculative excess that is driven by investor FOMO instead of Fundamentals-the type of start-up that often ends in sharp corrections.
Emily Roland, co-chief investment strategist at John Hancock Investment Management, described the current environment as unusually favorable but vulnerable.
“It is really back to the honeymoon phase with these fed spending cuts that come through, but are no longer sinister to display a truly deteriorating labor market,” she told Yahoo Finance on Thursday and noticed that the market is currently “selective hearing”.
