Stock markets are hitting record highs and artificial intelligence companies keep growing. This has some people wondering: “Are we in a bubble?” This question is as much about how investors feel as it is about actual market conditions. While worrying about bubbles is normal, focusing too much on them can hurt your investment strategy. It may push you toward trying to time the market instead of sticking to your long-term financial goals.
Watch:
The word “bubble” gets used a lot when talking about investing, but it’s actually hard to say exactly what it means. Markets naturally go through ups and downs. How investors feel about risk changes over time. Yes, there have been real bubbles – like the dot-com crash in the late 1990s and the housing crisis in the mid-2000s. But there have been many more times when people worried about bubbles that never happened. After 2008, investors kept expecting another crash. Instead, the market went on its longest winning streak in history.
Asking “are we in a bubble?” is different from asking “will stocks go down soon?” As we’ve seen in recent years, short-term drops are normal and can happen at any time. Earlier this year, the S&P 500 fell 19% but recovered in less than three months. Many investors who tried to time the market missed out when prices bounced back.
Stock prices are high, but context matters
To understand whether we’re facing a real bubble or just a normal pullback, we need to look at value. In investing, what matters isn’t just the price you pay – it’s what you get for your money. When you buy stocks, you’re buying part of a company and its profits. Valuation measures like price-to-earnings ratios help us understand what we’re getting for each dollar we spend.
The chart shows the Shiller price-to-earnings ratio. This measures valuations over the long term by looking at company earnings over the past ten years, adjusted for inflation. The current level is 38x, meaning investors pay $38 for every $1 of past earnings. This is higher than the average of 27x.
Even though stocks look expensive compared to history, there are a few important things to remember. First, high valuations don’t reliably predict what will happen to stock prices in the near future. They just tell us how much investors are willing to pay based on what they expect. Even when stocks seem expensive, prices can keep rising if companies keep doing well. This is why trying to time the market often backfires.
Second, today’s situation is different from the 1990s tech bubble in some important ways. Back then, many internet companies had no profits. Today’s leading tech companies are established businesses with strong profits and healthy finances.
Good investment options exist beyond big tech stocks
While the overall market looks expensive, other areas offer better value. The chart shows that Large Cap Growth stocks have the highest price-to-earnings ratio at 28x. Other types of stocks, including Large Value and Small Cap stocks, have more attractive prices while still showing healthy earnings growth.
This is also true across different industries. AI-related companies are mainly in Technology, Communication Services, and Consumer Discretionary sectors. Recently, other sectors with better valuations have also done well, including Financials and Industrials.
For investors, owning a mix of different stock types, sizes, and industries helps reduce risk. It also can improve your portfolio’s overall valuation. Since it’s hard to predict which area will do best at any given time, holding a balanced mix makes sense.
Time is one of your best investing tools
The most important lesson from market history is simple: time rewards patient investors. The chart shows that major market events look less dramatic when you zoom out to view years and decades. Both the tech bubble and housing crisis, while difficult when they happened, were followed by recoveries and new all-time highs.
This shows why portfolio balance matters, along with strategies like dollar cost averaging (investing the same amount regularly over time). Even people who invested at the worst possible times in history achieved positive returns if they waited long enough.
Concerns about a bubble have grown as markets keep hitting new highs and technology stocks become more important. Instead of worrying about short-term movements, focus on historical lessons and your long-term goals.
The bottom line? Today’s high stock prices reflect strong company earnings and fundamentals. The key is owning a diversified mix of investments that can grow while managing risk – something best done with professional help. If you would like to discuss these topics or your portfolio in more detail, please don’t hesitate to reach out. We look forward to speaking with you. You can reach Jason Noble, CFP®, RICP® | Financial Advisor & Member/Partner by calling (843) 743-2926.
This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations.
Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness.
Copyright (c) 2025 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
