Data shows that retail participation has been near all-time highs, which does tend to correlate with bubbly market activity.

The market in general is fairly highly valued when looking at the standard valuation metrics, but corporate earnings have been strong as well. That said, the most obvious grey swan would be the market concentration in the top names, which market cap weighted index funds do not avoid and indeed contribute to on a mechanical level. That said, the names will eventually swap around within the index, and as long as capital flows to US financial markets don't reverse (see the back to back 7% down days for market cap weighted indexes during the tariff scare) these rotations won't ultimately be a problem.

Beyond that though, it's not as bad as it looks at first glance. Other areas of the market have pretty large pockets of value, or at least more average valuations. Some names in consumer discretionary are still at the bombed out post tariff scare valuations (ex: LULU which is a good example of a name that had optimism and now has extreme pessimism and low valuation, ANF which has good earnings despite tariffs and is cranking buybacks sub-10 PE) and sectors like healthcare (you have to be a real contrarian to get in here, but when Buffett is buying the value proposition is usually pretty extreme), and energy (quality energy names like FANG trading near single digit PE with management that is showing extreme capital restraint in the face of uncertainty, for once). Smallcaps in general aren't that expensive, since they are on the back-end of the huge, crowded long/short trade (that has been unwinding for a few days now).

Even in megacaps it isn't all bubbly. Google has a lot of pessimism and isn't that expensive, which may or may not be warranted but it is a counterexample. The ridiculous valuations are quite concentrated in the AI related space, specifically in specific names which retail is obsessed with (ex: PLTR( or hedge funds are obsessed with (ex: GEV).

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some_random 4 days ago | parent | next [-]

When you say retail participation being at a high correlates with bubbly market activity, is that based on recent data? I'm concerned it doesn't take into account the increase in access to the market app based trading has proliferated.

	▲	Fade_Dance 4 days ago \| parent [-]
		Yes. https://i.ibb.co/8gFNPcwX/temprp.png - Goldman chart. Luckily we have the lockdown era as a benchmark, when everyone was locked inside and Robinhood style option and stock trading, the SPAC craze, etc, was at mania levels. App proliferation today is close enough to the same as the 2020-2022 period, but it's a good point and sure, a portion of the increase probably does come from further online trading market penetration.

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Hizonner 4 days ago | parent | prev [-]

> as long as capital flows to US financial markets don't reverse

A rather large and probably counterfactual assumption, if the US continues, or even looks like it might continue, on the path it's been on.

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Fade_Dance 3 days ago | parent [-]

The April meltdown was a great example of how markets react to net capital outflows from global investors. Interestingly enough, since the foreign buyer strike, money has been roaring back into US financial markets. I'll zip my mouth when it comes to judging their decision on that front, but I'll at least say that I suspect that the AI narrative has a strong pull, and much of the world really has no good option to participate in this apparently extremely intoxicating investing narrative other than to buy US tech. To be fair, the US has these sorts of narratives running more often than not, so we'll see how it plays out long term. As of now, talk of foreign money being pulled from the US was a flash in the pan.

	▲	Hizonner 3 days ago \| parent [-]
		You may of course be right. The reason I think you're probably (possibly?) not right is that it's nice to participate in this or that boom, but there's no point if you don't get to keep the profits. I don't think "the market" has internalized how risky the US is becoming, and I think it'll take somewhere between a few more months and a few years for that to happen. It's not just about chaotic dumbassness like tariffs. It's not just about disrupting the labor force for stupid reasons. It's not just about attempts to undermine the independent management of the monetary system. Those are bad, but worse is that the whole underlying system of institutions is being trashed. Random shakedowns are being normalized. Government (including courts!) is being deliberately packed with partisans and cronies. For a really, really long time, the US has been a place where you could expect your counterparty to perform on a contract, and if they didn't you could expect the government to come to your aid, no matter who they were and even if you were a foreigner. You definitely didn't expect a "personal tax" on your company if you didn't suck up to the right people (or just because you happened to be handy). Oh, and you also didn't expect to be dealing with the kind of people a system like that selects for. People just assume the US isn't run by gangsters, like they assume there'll be air the next time they breathe in. They're so used to that high trust that they don't even consciously factor the question into their decisions. It takes a long time for that kind of mental habit to change. It doesn't happen in a few weeks or a few months. But if US trustworthiness goes away (which it seems to be doing), and people figure it out (which they eventually will if it keeps up), then they're going to start assessing risk accordingly. Admittedly some of the random stupidity and even more of the outright gangsterism seem to come from Trump personally. He's 79 and in theory he only gets 4 years regardless. But that doesn't mean that it all comes from him, and he and those around him are trashing institutions and norms really fast, in ways that are really hard to repair. It's a big gamble to assume that can or will be reversed by a successor, especially since the systems that are supposed to choose that successor seem to be being rigged to favor candidates with similar approaches. And it won't help you if you're out of business before then.