Why is there so much fear of market bubbles?

Row bubble warnings on wall and width.

The market's relentless rally has lifted the S&P 500 nearly 25% since its October lows.

AI favorite Nvidia ( NVDA ) leads the way. The chipmaker has gained more than 80% since the start of the year, helping the S&P 500 (^GSPC) and Nasdaq (^IXIC) record gains.

The concentrated performance prompted some on Wall Street to warn that the rally has gone too far and that stocks are in bubble territory.

Market concentration has risen to a multi-decade high. The 10 largest US stocks now account for 33% of S&P 500 market cap and 25% of S&P 500 returns, according to Goldman Sachs data.

But concerns about narrow market participation and frothiness may be misguided. Several top Wall Street strategists made it clear on Yahoo Finance's “Morning Brief” last week that there is reason to believe the market will continue to rise.

“It's probably the best sell-side tactic right now… I don't think it's justified,” Citi US director of equity strategy Drew Pettit said of the bubble scare on Yahoo Finance Live. “It's actually a lot healthier than people give it credit for.”

Big tech's strong quarterly results have bolstered the bull case. Nvidia posted another strong quarter thanks to rising AI demand, while Meta ( META ), Microsoft ( MSFT ) and Amazon ( AMZN ) topped expectations.

High profit margins and proven returns are two reasons why Wedbush analyst Dan Ives describes the current market environment as a “1995 moment” rather than comparing it to the start of the dotcom bubble.

“It was nowhere near the 1999/2000 period because of high valuations, lack of monetization/infrastructure, weak balance sheets, frothy business models and the macro backdrop was a completely different world compared to what we see today,” Ives wrote in a note to clients.

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Chris Danley, Citi's head of U.S. semiconductor research, echoed Ives' bullish view on the technology, telling Yahoo Finance he “sees no end.”

“We have a long way to go until we start ringing alarm bells or hearing bells,” Danley told Yahoo Finance Live.

Beyond the technical and below the surface, the underlying trends are positive. Market breadth – a sign of bullish sentiment – began to slowly improve. The S&P 500 Equal Weight Index ( SPXEW ) and small caps outperformed the S&P 500 over the past month.

“The expansion we're seeing is happening in a stealthy way,” Charles Swap's Liz Ann Saunders told Yahoo Finance, adding that the chaos under the surface is “not a bad thing.”

Also, important to note, history suggests that high concentration does not necessarily indicate a market peak. Goldman Sachs examined market concentrations over the past 100 years and found that the S&P 500 has rallied more often than not following past concentration peaks.

“A consistent pattern surrounding periods of high concentration is large swings in momentum,” Goldman Sachs equities analyst Ben Snyder wrote in a note to clients. “While the performance of high-momentum leaders has been inconsistent, previous laggards have outperformed in every episode. This supports our view that a “catch-up” of laggards is more likely to interrupt an ongoing momentum rally than a “catch-down” by recent market leaders.”

Sean Smith He is a presenter at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, links, fan situations or something else? Email [email protected].

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