The Anatomy of a Stock Market Bubble
Since early December, the Nasdaq Composite Index has lost over 10% amid rising volatility and fears of a recession. These falls come from lofty levels: Over the past decade, the Index quadrupled, pushing valuations into overheated territory.
Are we starting to see the bursting of the large asset price bubble we warned about in The 2025 Picton Report?
We believe the signs point to yes. Historically, bull runs of this magnitude have been associated with unsustainable booms that left investors nursing significant losses:
The Roaring 20s saw a rise of 451.2% in the Dow Jones Industrial Average, followed by a decline of 66.3% in The Great Crash.
During the Japanese Asset Price Bubble that peaked in 1989, the Nikkei 225 Index climbed 407.9% and subsequently gave back 40.6%.
In the DotCom Bubble, the Nasdaq Composite Index soared 538.2%, then fell 56.8%.
Source
1st graphic:
Note: Data as of 1/27/2025. 1 Gold prices represented by Daily London A.M. Fix Gold Prices. Source: Macrotrends data from 9/9/1921 to 7/8/2010, CNBC data from 9/1/2022 to 1/27/2025.
2nd graphic:
Sources: The Conference Board as at 1/28/2025, Robert Shiller as at 12/2024, U.S. Federal Reserve as at 12/12/2024.
3rd graphic:
Sources: Picton Mahoney Asset Management Research as at 12/2024, S&P Global as at 1/2/205, Bloomberg as at 12/27/2024, Federal Reserve as at 1/27/2025, Robert Shiller as at 12/2024.
By the Numbers: It Sure Seems like a Bubble
From valuations to household allocations, U.S. equities seem to tick off many key attributes found in a bubble—beyond simply the extent of their rise.
Preparing for what’s ahead
Rather than betting on a potential crash, investors can consider a more cautious approach with multi-asset strategies that aim to balance risk and achieve long-term returns.
If you are an advisor, reach out to Picton Mahoney wholesaler today to learn more about the 40/30/30 framework.
This material has been published by Picton Mahoney Asset Management (“PMAM”) on March 17, 2025
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