Hanke: U.S. Stock Market in Bubble as Big Tech Fuels Rally
Steve Hanke warns his Bubble Detector and the bond-stock yield spread show the U.S. market in bubble territory after five mega-cap tech firms added about $10 trillion in 39 days.
Economist Steve Hanke warns the U.S. stock market is in bubble territory, citing his Bubble Detector model and the bond-stock yield spread. He wrote: “My Bubble Detector says the US stock market is in bubble territory. So does the bond-stock yield spread. Buckle up.”
Hanke is a professor of applied economics at Johns Hopkins and served as a senior economist to President Ronald Reagan. He has previously used his model to flag similar overvaluation projected through 2025 and 2026.
Market data show the recent rally has been concentrated in a small group of mega-cap technology firms. Over a 39-day period through early May, five companies — Alphabet, Nvidia, Amazon, Broadcom and Apple — accounted for roughly half of the S&P 500’s gains and added about $10 trillion to U.S. equity market value. Those five stocks contributed about six percentage points to the index’s roughly 12% rise since April 1. The equal-weighted S&P 500 rose about 6% over the same span. The Nasdaq traded above 29,000 during the rally.
Options and retail trading patterns highlight elevated risk appetite. Call option volume on the S&P 500 reached a record $2.6 trillion in notional value on a single trading day, with calls representing about 58% of S&P options traded. Individual investors were net buyers of technology hardware stocks, purchasing roughly $1.1 billion in the week ending May 6, marking several consecutive weeks of net inflows.
Technical strategists point to strong earnings reports and increased corporate investment in artificial intelligence as reasons investors focused on the largest tech firms. Mark Newton, head of technical strategy at Fundstrat, noted that the largest names had traded sideways for months before recent gains and that positive earnings and planned AI capital spending supported renewed buying.
Some individual stocks have experienced extreme price moves. A memory and storage company recorded a one-year gain of more than 3,700%, an unusually large advance by historical standards.
Hanke’s Bubble Detector compares current market prices with historical valuation norms and monetary conditions to identify potential asset-price bubbles. The bond-stock yield spread that Hanke cites measures the gap between government bond yields and the effective yield investors obtain from holding stocks; a narrower spread can indicate that stocks are valued higher relative to fixed-income alternatives.
Market participants are monitoring both macro indicators, such as bond yields and the bond-stock yield spread, and micro indicators, including the narrow concentration of gains, record options activity and retail flows, to assess market risk and breadth.
