Rudi's View | 10:00 AM
A strong rise in price does not by default mean irrational investors have created an unsustainable bubble, or that a sharp price reversal is but the sole logical outcome, inevitably, and just around the next bend in the relentless up-trend.
By Rudi Filapek-Vandyck, Editor
A strong rise in price does not by default mean irrational investors have created an unsustainable bubble, or that a sharp price reversal is but the sole logical outcome, inevitably, and just around the next bend in the relentless up-trend.
Probably the most obvious example of that statement are Australian property prices. Yes, they are 'expensive'. Yes, the multiples and ratios have expanded significantly from comparable times in the past. But isn't it remarkable how all the doom and gloom forecasters have gone silent on their previous conviction forecasts?
Property prices haven't fallen into the abys. If anything, they've kept on rising, with the occasional pause/brief pull back along the way.
My own conclusion has always been that too many of such forecasts are made on too flimsy justifications; simply looking at asset prices without the broader context surrounding them is by definition a flawed, unscientific way of analysing and making forecasts.
Quod erat demonstrandum.
Admittedly, things are not always straightforward and seeing the forest through the trees is not easy when in the eye of the action. Plus, when it comes to the share market, narratives, FOMO and bubbles are always firmly embedded and part of what creates broad-based enthusiasm for market participation.
In simple terms: bubbles, in all kinds of lengths and varieties, are part and parcel of what makes investing both treacherous and exciting.
The years past have offered plenty of examples, from electric vehicles and lithium, to 3D printing, cannabis, covid beneficiaries, and GLP-1s. In all cases, lots of money was made, during the good times, but it didn't last and those who stayed the course, or returned too soon, suffered the consequences.
The situation in late September 2025 is that equities have --without debate-- experienced a truly fantastic run since bottoming on the back of a global reset in bond yields in late 2022; particularly in the US where "exceptionalism" has become the new buzzword for investors and financial commentators.
The S&P500 is up 86% since its closing low on 12 October 2022, while the Nasdaq Composite has risen 121% since the 28th of December that year. Achieved over less than three years, those returns are well above historical averages. Equally important: after such a run, multiples and ratios are well above historical averages too; in some cases they are near or at an all-time high.
Hence, it's understandable for your average level-headed market participant to start asking questions, like: is this experience too good to remain true? US equities haven't experienced one negative month since the tariff-related sell-off in April. The up-trend has remained so strong, even a seasonally treacherous September has gone by without a dent in the trend.
US markets have been flashing 'overbought' signals for a number of weeks, but to no avail. At least up until now. Markets do not necessarily follow a set script (see September) but maybe they'll find something to unwind some of this year's bubbled-up exuberance when we least expect it throughout the weeks ahead.
But contrary to what general commentary might look like (I suspect), any temporary unwinding of too much hot money chasing the same narratives tells us nothing about the elasticity and durability of what has --at its core-- fuelled today's bull market; artificial intelligence, or AI.
For those aiming to draw parallels with similar-looking times prior to significant bear markets a la 2000 and 2008, there are multiple similarities that can be highlighted, including strong upward momentum and elevated valuations, but that, still, might not be the full picture.
Indeed, a recent update by Oxford Economics (hardly the kind of analysis source that can be accused as biased towards pulling more clients’ money into the market to keep the trend going for longer) suggests rather than approaching its final destination, today's investment boom in AI and its underlying infrastructure might only have just started (see the comparative chart with the 1990s below).
[source: Oxford Economics]
Leaving negative biases aside in favour of a glass half-full approach, there are at least as many signals and indicators available to support conclusions and projections from Oxford Economics and others in favour of ongoing AI 'exceptionalism'; and they are worth highlighting lest investors are wrongly presented with the conclusion all the good news has occurred already and the only possible outcome is now for a return to the mean (or worse).
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