Six out of seven conditions are met for a stock-market bubble, this strategist says.

Jan 23, 2025

Article from MarketWatch by Steve Goldstein

Article Synopsis

UBS global equity strategist Andrew Garthwaite warns that the stock market is nearing bubble conditions, with six out of seven key indicators already met. These include a prolonged structural bull market, slowing profits, reliance on a few tech giants, a 25-year gap since the last bubble, speculative retail investor activity, and the “this time is different” narrative driven by generative AI. However, loose monetary policy, a typical bubble driver, is absent due to rising long-term debt yields.
Garthwaite suggests AI-led productivity gains or stronger corporate balance sheets compared to governments could justify high valuations. He advises caution, recommending defensive, low-leverage stocks like Microsoft and SAP, while staying underweight in cyclical sectors. In the U.K., rate-sensitive sectors like utilities and real estate present value opportunities. Investors should monitor the 10-year Treasury yield, as a rise above 5% could signal greater risk.

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