Are We in a Bubble? Maybe. Should You Panic? Probably Not.

There's a growing murmur in markets that feels familiar — a sense that we've come too far, too fast. Bubble talk is back.

High-profile commentators including JP Morgan's Jamie Dimon, OpenAI's Sam Altman, and the Bank of England's Andrew Bailey have recently voiced concerns that stock market valuations, particularly in tech, are looking increasingly unsustainable. Market indices are near all-time highs, yet investor sentiment is rolling over. This disconnect is evident in CNN's weekly Fear and Greed index, which has just tipped into "extreme fear" territory — a telling sign that optimism may be wearing thin.

In this week's blog, we explore why bubble talk is back and, more importantly, what you should do about it.

Please note, when investing, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invested, particularly if you invest for a short timeframe (we usually recommend a horizon of at least 5 years). Neither simulated nor actual past performance is a reliable indicator of future performance. Investments should be considered over the longer term and align with your overall attitude to risk and financial circumstances.

Warnings Are Coming from Unexpected Places

Concerns about market valuations are no longer confined to contrarians and doomsayers. The International Monetary Fund, for example, recently flagged "risk asset prices well above fundamentals," while the Bank of England has warned of the potential for a "sharp market correction."

So what's driving these concerns? Several factors stand out.

1. Valuations Have Reached Historic Extremes

According to JP Morgan's Guide to the Markets, US stocks (as measured by the S&P 500) are trading at around 23x earnings — a 34% premium to their 30-year average - see chart below.

The last time we saw comparable valuations was during the Dot-Com boom of 1998-2000, which makes for an uncomfortable historical comparison.

However, a couple of caveats:

Valuations outside the US look more reasonable, sitting much closer to their long-term averages, albeit with a widening premium since the start of the year (chart below).
More crucially, today's tech giants are fundamentally different from their Dot-Com predecessors. They're better capitalised, demonstrably profitable, and increasingly valued on actual earnings rather than speculative potential.

2. Tech Interconnectedness Poses Concentration Risk

Recent developments have highlighted how tightly woven the US tech ecosystem has become. News that Nvidia is investing $100 billion in OpenAI — the company behind ChatGPT, itself backed by Microsoft — while simultaneously committing to purchasing more Nvidia chips, illustrates a troubling level of circular interdependence.

The concern here is that if one sneezes, they all catch a cold.

3. Private Credit Markets Show Early Warning Signs

The collapse of two sizeable private companies in the US - First Brands and Tricolor - coupled with significant losses at several banks, has triggered concerns about the broader health of the private credit sector.

The Bank of England's governor Andrew Bailey captured the uncertainty well: "Are these cases idiosyncratic or are they 'the canary in the coal mine?' In other words, are they telling us something more fundamental about the private finance, private asset, private credit, private equity sector?"

Jamie Dimon of JP Morgan was more colourful in his assessment: "When you see one cockroach, there's probably more."

These instances have inevitably drawn comparisons to 2007-08, when early defaults in private markets eventually cascaded into the collapse of Lehman Brothers and the Global Financial Crisis. It's worth noting that such comparisons may be overstating the parallels - but they've understandably captured market attention.

Stocks Continue to Party

And yet, the market keeps rising.

Despite mounting warnings, equity markets continue to grind higher. But investors aren't blind to the risks - they're simply weighing them against a backdrop that still looks pretty solid:

Corporate earnings continue to beat expectations, especially in US tech.
Inflation is under control in most developed economies.
Interest rates have stabilised, with no immediate pressure to rise further.

In the balance, the fundamentals still look reasonably healthy.

Another explanation, and one I buy into, is around liquidity.

As the Financial Times recently highlighted (Why gold and stocks are partying together), there’s still substantial liquidity sloshing around global markets - a legacy of the COVID-era stimulus and the ultra-loose monetary policy of the past decade. That money has to find a home.

With traditional savings yields still relatively unattractive, much of it flows into equities and other assets. The same dynamic helps explain the recent surge in gold prices — despite the metal’s usual inverse relationship with stocks. Investors are chasing both returns and safety at once, and in a world awash with cash, both asset classes can rise together.

A Sell-Off Is Coming - But That's Normal

To be clear, we're not saying markets will (continue to) rise in a straight line. They won't.

Taking the U.S. S&P 500 as a benchmark, between 1950 and 2024 the index has experienced an average intra-year decline of 13.6% - every single year. More substantial pullbacks of 25% or more occur roughly once every five to six years.

The table below illustrates this pattern, showing the maximum intra-year drawdown and total calendar-year return for the S&P 500 across the 1950–2024 period. It’s a reminder that volatility is a feature of markets, not a flaw — and that even within strong years, meaningful corrections are entirely normal.

Yet despite these regular turbulences, the average annual return over this period was 11.6%.

Temporary and sizeable market corrections are simply the cost of admission. And in reality, we're probably due for one of those 25%-plus corrections. That's just how markets work. Volatility is your admission ticket for superior long-term returns.

What Should You Do?

If markets were selling off, our advice would be familiar: don't panic. Investing is a long game. Stay diversified. Rebalance regularly. Stick to your plan.

The same advice applies now, just from the other side of the cycle.

Trying to Time a Correction Is a Dangerous Game

Trying to time the market is rarely a winning strategy.

Consider those who exited the dot-com boom too early — they missed a final, powerful surge before the inevitable crash. The danger of selling now is just as real: markets could correct tomorrow… or rise another 20% first.

And when do you buy back in? When markets are at their lowest, they always feel like they’ll go lower. The Trump-tariff volatility earlier this year was a perfect example — at one stage, it seemed like U.S. Treasuries were about to roll over, and that moment turned out to be the absolute bottom.

Instead of second-guessing the top, we return to ‘first principles’:

1. Diversify

Spread exposure across sectors, regions, and asset classes to manage risk. In the current environment, we also favour a modest tilt towards value stocks, smaller companies, and profitable businesses - effectively a slightly more defensive posture within the context of elevated U.S. tech valuations.

2. Rebalance

Portfolios naturally drift as markets move. Regular rebalancing ensures equity weightings don’t run too high and helps rotate capital into safer assets like cash and bonds. This creates an automatic buy-low, sell-high mechanism that works quietly in the background.

3. Secure near-term spending needs

Given current valuations, we suggest holding roughly three years’ worth of planned withdrawals in cash. That way, you’re not forced to sell investments at depressed levels, if we do see a material sell-off during that period.

4. Review your risk profile

Above all, if market volatility is keeping you awake, let’s talk about it. Adjusting your portfolio’s risk level — even modestly — can make sense, as long as it doesn’t compromise your ability to meet long-term goals.

Final Thoughts

There are real risks out there. But there are also solid reasons why markets remain buoyant — stable inflation, steady rates, strong corporate earnings.

And more fundamentally, companies continue to innovate. They are relentlessly seeking efficiency, creating new products and services, and adapting to changing consumer needs.

As long as businesses are incentivised to grow and make money — and as long as investors share in those profits — markets should continue to rise over time. Not in a straight line, and not without turbulence. But the long-term trend is up.

A correction will come. It always does. But that’s not a reason to abandon your plan. If anything, it’s a reason to make sure your plan is fit for purpose. Diversified. Balanced. Robust. And ready for whatever comes next.

As ever, if your portfolio feels out of kilter — or if the headlines are giving you pause — we’re here to help.

Happy Thursday!

Kind regards,
George

Referrals Welcome

Our business grows mainly through personal recommendations. If you know someone—whether a friend, family member or colleague—who might benefit from financial planning, we’d be grateful if you could share my details with them. Alternatively, you can pass their details on to me, and I’ll be happy to reach out.

Regulatory Information

Blincoe Financial Planning Limited is an appointed representative of Sense Network Ltd, which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales (No. 14569306). Registered Office: Star Lodge, Montpellier Drive, Cheltenham, GL50 1TY.

Important Disclaimer

This blog is for general information only and is intended for retail clients. It does not constitute financial or tax advice, nor is it an offer to buy or sell any specific investment. Since I don’t know your personal financial situation, you should not rely on this content as tailored advice. While we aim to provide accurate and up-to-date information, we cannot guarantee that all details remain correct over time. We are not responsible for any losses resulting from actions taken based on this blog’s content.

Bubble Talk Returns: What It Means for Investors in 2025