The S&P 500 (^GSPC) and Dow Jones Industrial Composite (^DJI) closed at fresh record highs as equities extended the rally fueled by former President Donald Trump’s reelection. The market bulls say the rally has room to run. The Leuthold Group CIO Doug Ramsey joins Market Domination Overtime Hosts Julie Hyman and Josh Lipton to discuss current market conditions and what he calls a bubble. Ramsey defines several metrics that indicate a stock market bubble. “Whenever the market has traded north of 21 times forward earnings, it’s been in a bubble… When it’s been north of 18 times cash flow historically, it’s been in a bubble. It’s 20 times today.” He notes, “Every one of these metrics… are now trading at levels which have never been seen outside of bubble zones [historically].” The strategist says “I think we’re there. I get that maybe the enthusiasm from the retail crowd is not what it was, for example, during the internet bubble, but just empirically, and I think based on forward returns from here, we’re [in a bubble] regardless of how people feel.” Yardeni Research analysts lifted their price targets for the S&P 500 in 2025, 2026, and 2027, expecting strong earnings growth. Ramsey says he’s “skeptical of that argument with respect to the large and the mega caps because that’s where the margin expansion has been historically. Expanding margins from here, let’s say for the average S&P 500 stock, I think is going to be really tough.” He notes that he agrees with Yardeni’s thinking on mid-cap and small-cap stocks. Amid signals that there is a stock market bubble, Ramsey says, “We’ve been trimming back on our tech holdings here for a number of months, and we’re underweight tech now relative to the S&P for the first time in at least a couple of years. What we’re seeing sort of bubbling up, if you will, in our industry group rankings is more value-oriented groups and, in particular, financials.” He adds, “Overall, I do see a rotation away from the large-cap growth leadership that has just dominated throughout this bull market and, quite frankly, even throughout the prior bull market. I do finally think that that leadership torch is being passed over to value and to secondary stocks, small and mid-caps.”
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