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The bubble will inflate another 20% before bursting

The bubble will inflate another 20% before bursting


  • The stock has another 20% upside before the bubble bursts, Capital Economics predicted.
  • The research firm predicted the S&P 500 would hit 6,500 before staging a correction.
  • That's because stocks tend to inflate quickly just before a bubble ends, the company explained.

Investors watching for signs of a bubble should expect the stock market to rise another 20% before correcting, Capital Economics researchers said.

The research firm highlighted the latest rally in stocks, with the S&P 500 and Dow Jones Industrial Average recently posting new record highs and major indexes heading to new all-time highs as the week began Monday.

But investors trying to push the bull market higher should know that the market can only gain so much more. According to John Higgins, chief market economist at Capital Economics, stocks appear to be in a late bubble stage, meaning they are poised for a strong rally before the bubble bursts.

“There's always the temptation to chase the market higher, but I'm not convinced you should do that at this point. The story we told about a year ago seems to be coming true,” said Higgins. said in a recent podcast. “What is this story? I think it's a simple story that involves a bubble inflating in the stock market,” he said, noting the enthusiasm for big tech.

Wall Street's enthusiasm for AI mirrors the hype around Internet stocks in the 1990s, Higgins noted, which should bode well for the market. The Nasdaq Composite Index lost 77% between its peak and trough in the early 2000s, and the entire market saw its value disappear by $5 trillion in 2002.

It's “impossible” to predict when the bubble will finally burst, how far stocks will fall or what will trigger the correction, Higgins noted. But it could happen as soon as late next year, he suggested, because that would extend the pandemic bull market to about 5 years, the lifespan of the dot-com bubble.

He predicted that the S&P 500 could reach 6,500 by the end of 2025. That implies another 22% rise in stocks before the bubble begins to deflate.

“Bubbles tend to inflate the most in their final stages, when excitement peaks,” Higgins warned.

Other market commentators have warned stocks appear to be in a bubblewith stock prices having surpassed a series of record highs in 2024. More extreme forecasters have predicted that stocks could collapse as much as 65% as the hype around AI quickly dissipates.




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