Janus Henderson’s Richard Bernstein says five indicators of a stock market bubble are present again, with record margin debt and stock trading, while US tech and AI companies carry more than $3 trillion in on- and off-balance-sheet debt.
Bernstein identified increased liquidity, leverage, market participation, new issues and turnover as factors signaling a bubble. He says financial conditions remain easy, margin debt is at record levels in dollar terms and relative to GDP, and hedge fund leverage is at an all-time high. Zero-day options account for about half of US stock-options turnover.
Robinhood has added 10 million customers since its July 2021 IPO, when it reported 18 million funded accounts. Its revenue from event contracts now exceeds its crypto business. US stock turnover averaged more than $1 trillion a day in January, while retail equity turnover this summer was close to twice its average level since the start of the decade. The article also says IPO activity is hotter than five years ago and that SpaceX raised a record $75 billion in June.
The article argues that the current bubble is more dangerous because the US stock market is concentrated in a handful of large companies and increasingly exposed to AI. It says AI investment is driving corporate earnings and much of that investment is debt-financed; total on- and off-balance-sheet debt for US tech giants and AI labs exceeds $3 trillion. Bernstein warns that expectations of accelerating revenue growth underpin circular financing among leading AI players, leaving it vulnerable to a slowdown.
