(The Epoch Times)—For more than two years, U.S. stocks have pushed higher almost without pause. Tech giants fueled by the artificial intelligence (AI) boom dominate headlines, meme stocks are staging spectacular comebacks, and investors are borrowing record sums to chase gains.

With valuations stretched and bullish sentiment running high, many are asking: Are U.S. stocks in a bubble?

“Bubbles are easy to identify in hindsight, but not necessarily when you are inside the froth,” Michael Ashley Schulman, CFA, chief investment officer for California-based Running Point Capital Advisors, told The Epoch Times via email. “And even when you can identify them at the moment, it is tremendously difficult to know how long they will last.”

Nobel Prize‑winning economist Robert Shiller offers a framework for considering the question of whether markets are now in a bubble. In his book Irrational Exuberance, Shiller compares identifying bubbles to diagnosing a mental illness: no single symptom proves it, but the more that appear, the stronger the case.

Soaring Prices and Valuations

Shiller’s first warning sign is runaway prices relative to fundamentals. Today, his own cyclically adjusted price‑to‑earnings (CAPE) ratio sits near 38 times earnings—more than twice its long‑term average and comparable to peaks seen during the dot‑com boom.

Schulman says this “everything rally” feels eerily familiar.

“Today’s everything rally may uncomfortably hint at prior manias,“ Schulman told The Epoch Times. ”Valuations reminiscent of past near-term tops, margin leverage above normal, and retail euphoria straight out of the 2021 Reddit playbook, only this time with a crypto and AI twist.”

Pierre Dongo‑Soria, CFA, principal investment strategist at Russell Investments, said in a May 2024 analysis of Shiller’s framework that valuations may be high in some sectors, but it doesn’t necessarily amount to a full‑blown bubble.

“Specific sectors, such as AI or technology stocks, might appear frothy, but the overall system can sustain some level of exuberance,“ Dongo-Soria wrote. ”A balloon can hold some air without bursting. Similarly, assets reaching overvalued territory and then correcting does not necessarily indicate a bubble. It is part of usual market behavior.”

Schulman also offered a counterpoint to the bubble narrative: some “shock absorbers” remain in effect. The Federal Reserve has kept interest rates “relatively normalized,” and unlike during the dot‑com bubble, today’s tech firms have “real earnings and real earnings growth.”

Compelling ‘New Era’ Narratives

Bubbles often feed on seductive stories that “this time is different,” according to Shiller’s framework. The AI boom may be today’s defining narrative, with investors betting it will transform productivity and corporate profits.

Stephen Callahan, a trading behavior analyst at Firstrade, warns that some of these narratives are running ahead of reality.

“One of the clearest warning signs is when narrative-driven hype begins to outweigh fundamental analysis,“ Callahan told The Epoch Times in an emailed statement. ”That’s exactly what we’re seeing in parts of today’s AI rally. Valuations for some AI names have decoupled from earnings reality, retail sentiment is running hot (especially around companies like Nvidia and AMD), and risk appetite is elevated among VCs and institutional players alike.”

Callahan acknowledges AI’s potential to transform the economy but warns that investors face a risky backdrop of tight liquidity, lofty valuations, and fragile fundamentals.

“Not every company riding the AI wave will deliver long-term value,” Callahan said. “Many will likely prove to be flashes in the pan, like in the dot-com bubble. What’s particularly different this time is the backdrop of tighter credit conditions. If the Fed cuts rates without a strong economic justification, we could see an even sharper disconnect between AI valuations and actual performance.”

Fear of Missing Out

Another classic bubble symptom identified by Shiller is FOMO—fear of missing out. This pressure often drives investors to borrow more, and the latest margin debt data reflects this.

Figures from the Financial Industry Regulatory Authority (FINRA) show that margin balances exceeded $1 trillion in June 2025, the highest on record.

“As every bubble historian knows, when fundamentals take a back seat to FOMO and clever acronyms, the punch bowl starts sloshing, but when it tips over is anyone’s guess,” Schulman said. “As long as credit markets remain open and lenders are willing to lend, we are likely to stave off a recessionary scenario.”

Media Hype and Feedback Loops

Media coverage can amplify market narratives, creating a self‑reinforcing loop where rising prices fuel headlines, which in turn fuel more buying, according to Shiller’s framework.

Intense media focus on AI breakthroughs, record stock prices, and meme‑stock comebacks is emblematic of this cycle.

“Narratives are powerful drivers of human behavior,” Dongo-Soria wrote in his analysis. “In financial markets, stories about why this time is different, observing neighbors becoming wealthy, extensive media coverage, fear of missing out (FOMO), and frequent discussions about investments—even among those who typically don’t invest—all contribute to psychological pressures to act.”

Callie Cox, chief market strategist at Ritholtz Wealth Management, wrote in a July 28 note that bubble chatter itself has risen sharply.

“Today, the bubble talk is heating up again,” Cox wrote. “Google tells me that searches for ’stock bubble’ have reached the highest level in four years.”

Michael Landsberg, chief investment officer at Bennet Private Wealth Management, points to trade policy as an additional catalyst for the rally—and a driver of volatility.

“I would expect as we get more and more of these deals, the market will continue to go higher,” Landsberg said last week, after the S&P 500 notched a record close on July 23 on speculation that the United States and the European Union were on the verge of signing a trade deal. “At some point, you think it’s fully priced in, but days like today show you it’s not.”

Speculative Activity

The resurgence of meme‑stock rallies has injected fresh waves of speculative energy, with retail traders once again driving outsized moves in a handful of names reminiscent of the GameStop frenzy, where profitability concerns take a back seat.

Callahan sees the same mood fueling parts of the AI trade.

“As capital floods into the space and legacy firms ramp up AI-related M&A, investors would be wise to remain selective,” he cautioned.

Speculation is also thriving in the options market. Zero‑day options (0DTE)—contracts that expire the same day they are traded—have surged in popularity, magnifying intraday swings.

Schulman notes these trades have a “distinct time limit to their risk,” as exposures reset daily, yet they can still amplify sudden surges and reversals when speculative momentum builds.

Fundamentals Still Provide Support

Despite bubble concerns, fundamentals remain relatively strong, according to Paul Eitelman, global chief investment strategist at Russell Investments.

In a recent episode of Russell Investments’ Market Week in Review, Eitelman pointed to robust corporate earnings and steady consumer data as key drivers of the rally.

“With corporate fundaments looking resilient, we think 10 percent earnings growth is possible by the time the season wraps up,” Eitelman stated.

He also noted encouraging signs in the broader economy.

Retail sales rose by 0.6 percent in June after May’s decline, he noted, while pointing to a drop in initial jobless claims compared to a week earlier. “We’re still not seeing any evidence of a layoff cycle in the U.S., which is very important for the health of consumers and the labor market,” he said.

Are We in a Bubble?

Shiller’s framework doesn’t give a simple yes or no answer. But many symptoms—soaring valuations, narrative‑driven hype, FOMO, heavy borrowing, and media amplification—are flashing.

“Much money can be lost in bubbles—buyer beware—but a lot can also be made on the ride up,” Schulman said.

Cox offered a nuanced reminder in her July note.

“Spotting a bubble, however, is exceptionally more difficult than just going by the book,” she wrote. “The stock market trades away from earnings and economic data all the time, at least on a day-by-day basis.”

“Inexplicable moves by themselves don’t signal a bubble is forming,” she continued. “Sometimes, investors are rightfully sniffing out a trend that has yet to materialize in hard data.”

Michael Green, chief strategist at Simplify Asset Management, warned that passive investment flows are also fueling the rally and contributing to bubble‑like dynamics.

“How that plays out and how that reverses itself is still the subject for debate—and whether it will ever reverse itself,” Green said on a recent episode of the Wealthion podcast.

“I very clearly fall into the camp that says we’re just heightening sensitivity and raising the risks—but we’re clearly in a bubble.”