Mini Frenzies Are Intensifying in Financial Markets

Today's Brief Summary presents a quite interesting picture in financial markets. Mini crazes are observed in many areas, from artificial intelligence spending to cryptocurrencies, gold, and fake meat donuts. However, unlike past collapse cycles, today's excesses have not yet affected a broader rally.

Ed Yardeni, president of Yardeni Research and a market veteran, calls this a "bubble about bubble concerns" and argues that the expression "everything bubble" does not have a real counterpart. Instead, he suggests that investors have been turning to many mini crazes revolving around speculative assets, meme trading, and data center stocks.

This kind of enthusiasm is spread across smaller crazes instead of a single major explosion. For example, there are many opportunities, like artificial intelligence stocks, the historic rise in gold, and SPACs. Although Bitcoin has fallen from its peak of around $120,000, it still manages to remain around $110,000; this paints an image of a market that displays both enthusiastic and peculiar stability.

Yardeni reminds us that we have gone through similar situations in the past. The "everything bubble" story first started during the Janet Yellen era and gained momentum with the pandemic stimulus in 2020-2021. During this period, speculative explosions occurred briefly, but none led to a financial disaster or recession. There is a possibility that the same thing could happen again; bubbles may burst, but history shows that such bursts often leave fertile ground for future rallies.

The current backdrop is also quite positive. Stocks are at record highs, U.S. real GDP is at a historical high, and the U.S. has not experienced an official recession in the past 16 years except for the two-month pandemic shutdown in 2020.

Goldman Sachs released a report questioning whether artificial intelligence has entered a bubble phase. Goldman strategists Eric Sheridan and Kash Rangan emphasized that AI investments have become "circular," indicating that large tech companies are investing in one another. Sheridan stated, "This circularity worries me," and added that today's tech giants are not in the same situation as they were in 1999. Companies like Nvidia and large firms such as Microsoft, Meta, Alphabet, and Amazon generate substantial cash flow, return capital to their shareholders, and still trade below the outrageous levels of the dot-com era. "Artificial intelligence may not be a bubble yet," Sheridan said.

If Yardeni is right, this could be significant: Small bubbles will always form and eventually burst. However, in such a strong market, a few bursts do not create issues; they are evidence that the overall market is still standing.