A sense of a bubble in the air
Summary
- The US stock market shows signs of a bubble, with easy liquidity and high leverage levels, despite rising interest rates.
- Investment leverage is at a record high, with leverage relative to GDP at 4.5%, compared to a long-term average of 3.1%.
- The US IPO market is active, with significant offerings like SpaceX's 75 billion USD and Anthropic's anticipated 2 trillion USD valuation.
- Index investors should be cautious, as the MSCI World index is concentrated, with 25% weight in the 9 largest AI-centric companies and a 30% weight in the information technology sector.
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Automatic translation: Originally published in Finnish 30/09/2026, 05:06 GMT. Give feedback here.
AI hype and the resilience of the stock market despite rising interest rates have justifiably raised questions about a new bubble, especially in the US. There is indeed a sense of a bubble in the air if you take a good sniff.
I recently read an interesting column by Reuters, dramatically titled "The Everything Bubble is back and bigger than ever". It listed a few characteristics of a bubble that are in the red zone right now, and I will highlight some of them here.
Liquidity is available
Easy money is generally considered a sign of a bubble. Five years ago, liquidity was abundantly available to investors as central banks stimulated as much as they could, and some of the cash flows also trickled into the stock market. Now, central banks' balance sheets are no longer growing, but financial conditions in the US remain on the loose side, pointing to sufficient liquidity.
Leverage used more diligently than ever
On the risk side is investment leverage, which is now at an all-time high. Leverage relative to GDP is currently hovering around 4.5%, while its long-term average is 3.1%. In addition to investors, leverage is at its peak among hedge funds, and this is visible in new instruments such as leveraged single-stock ETFs. Naturally, leverage works against itself when a bear market begins, amplifying the decline when both one's own and others' money is in the market.
US: Leverage relative to GDP, %
Source: gurufocus.com
Hot IPO market and increased volumes
It has become clear even to Finnish investors (despite the delay of Oura's listing) that the IPO market in the US is currently hot. This year, Elon Musk's SpaceX raised a record 75 billion dollars in its offering, and Anthropic is preparing for a listing at a valuation of 2 trillion dollars. Shares have also been traded briskly: the Reuters column mentions that, according to Citadel Securities, retail investors' share turnover this summer has been almost double compared to the average level at the turn of the decade.
Source: Reuters
When these factors are combined with the AI-driven market sentiment and companies' increasing borrowing, risk levels are undeniably elevated. Even index investors would do well to note this, as the traditionally well-diversified global index is currently highly concentrated. For example, the weight of the 9 largest companies in the MSCI World index is 25%, and they are heavily AI-centric. Similarly, the information technology sector weight in the index is 30%. Even an informed index investor would do well to prepare for increased diversification.
