Markets Strong, No Stock Bubble Yet

In Brief

• Goldman Sachs says tech rally driven by real growth, not speculation or excess.
• Equity valuations are rising but still below historical bubble levels, analysts note.
• U.S. stock futures up 0.16% as gold hits record $4,000 amid safe-haven demand.

Goldman Sachs said the current equity rally, led by major technology companies, is supported by strong fundamentals rather than speculation. The bank’s Wednesday note to clients emphasised that while market valuations are high, they remain below levels typically seen during historical bubbles.

Analysts observed that the equity bull market and soaring tech valuations have sparked comparisons with past speculative cycles. However, Goldman maintained that leading companies have unusually strong balance sheets and earnings growth, distinguishing the current trend from bubble-like behaviour.

The firm pointed to the AI sector’s dominance by a few established players as evidence of structural strength, not unchecked exuberance. It added that the concentration of gains among large incumbents differs from previous bubbles that featured the rapid entry of unproven startups.

Goldman said bubbles generally emerge when stock prices and valuations rise beyond the realistic future cash flows of related companies. In contrast, it noted that the present rally remains anchored in real profit growth and tangible business performance.

Market Concentration Grows but Valuations Remain Contained

The bank’s chief global equity strategist, Peter Oppenheimer, acknowledged similarities to past speculative episodes, including higher valuations and tighter market concentration. Yet, he asserted that strong earnings and disciplined investment behaviour continue to support equity performance across major sectors.

Goldman highlighted that technology companies’ profit expansion, especially in the U.S., explains much of the market’s sustained strength over the past fifteen years. The report also cautioned that future momentum relies heavily on ongoing earnings growth from dominant firms within the AI and digital infrastructure industries.

U.S. stock futures rose about 0.16% across major indexes on Wednesday, with the Dow Jones, S&P 500, and Nasdaq 100 all rebounding from earlier declines. Meanwhile, gold futures continued their climb, surpassing $4,000 per ounce as investors shifted toward safe-haven assets amid broader macroeconomic uncertainty.

Goldman concluded that while market valuations are stretched, they are not yet consistent with historical bubbles, though diversification remains essential.