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8 June 2026

US stocks are hitting new highs, but worries over narrow market leadership, runaway prices, and high valuations in parts of the tech sector, are leading some to wonder whether this is a market bubble. So, has irrational exuberance taken over, or is this simply investors pricing in a better outlook? There are three factors to watch:

#1. Momentum. Tech companies have taken up a rapidly growing share of total US market value in recent years. And with semiconductor and other AI hardware stocks now accelerating, recent price moves are starting to echo the dotcom bubble (see chart). Upcoming blockbuster tech IPOs are adding to the frenzy, and that’s making momentum look frothy.

#2. Valuations. For the S&P 500, the long-term Shiller PE ratio has risen close to historic highs. On trailing numbers, price-to-earnings and price-to-book valuations also look full. But on forward earnings, valuations are still reasonable. And the equity risk premium isn’t as bubbly as it was in the dotcom years.

#3. Liquidity. In 1996, former Fed Chair Alan Greenspan famously warned of “irrational exuberance”, before playing a part in bursting the dotcom bubble by hiking rates in 1999 and 2000. With markets now beginning to price policy hikes, a tightening of liquidity could eventually begin to weigh on stock market performance.

For now, there doesn’t seem to be overwhelming signs of a bubble. But there are reasons for caution. That means an active and stock-picking approach in US tech is warranted. Emerging markets – where valuations aren’t as demanding – may also offer a route into the AI theme.

“2 shocks and a boom” – Commodity spikes, the China shock and the AI investment mega trend all foster divergent growth profiles and spikey inflation. But policy uncertainty has not translated into higher asset volatility. It’s a “different world” in macro and markets, and this confusing landscape means episodic volatility is to be expected.

Broadening, beyond borders – The AI boom continues while profits are stellar, keeping valuations in a reasonable range, and liquidity is ample. But the emerging theme is the AI investment spillover into other sectors and new factors. Emerging markets are poised to benefit, in particular.

Yield to opportunity – Meanwhile, income opportunities are appearing across the fragmented world. That can provide new ballast for portfolios: selectively – in G7 bonds, and high-quality public and private credit – but also in emerging markets bonds. This is also the case in defensive parts of the stock market, like infrastructure, with high-quality dividend payers reintroducing income as a source of return. 

Overall, credible and proactive policymaking remains a driver of EM resilience, which can support both valuations and long-term return prospects in EM fixed income. 

The mix of strong profits and weak household income illustrates the “K-shaped” nature of the US economy and just how unpredictable the outlook is. It’s likely that the economy begins to rebalance as robust profits support a gradual jobs recovery and, alongside easing inflation, stronger real household incomes. But there’s also a risk that consumers pull back spending before conditions improve, weighing on broader economic profits. This is a potentially underappreciated risk, even if AI enthusiasm dominates for now.

The yen remains undervalued but valuation alone hasn’t been enough to drive appreciation while interest-rate differentials remain wide. Sustained gains in the currency will likely need a more substantial narrowing of those differentials or a rise in Japanese real yields relative to overseas alternatives.

Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Costs may vary with fluctuations in the exchange rate. Source: HSBC Asset Management. Macrobond, Bloomberg, Refinitiv, Factset. Data as at 7.30am UK time 05 June 2026.

For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index.  Source: HSBC Asset Management. Data as at 7.30am UK time 05 June 2026.

After recent rallies, global equities posted more muted gains last week. In the US, the S&P 500 again hit new highs, but the Nasdaq took a breather, with Info Tech shares pulling back after strong recent momentum. The Euro Stoxx 50 rose, while the Nikkei 225 was on track to end a choppy week modestly higher. Elsewhere in Asia, Kospi retreated after reaching a new all-time high, while Indonesian equities dropped further amid ongoing outflow concerns; other markets were largely range-bound. In rates markets, US Treasury yields edged higher as oil prices rebounded amid lingering geopolitical risks, and European sovereign yields also climbed ahead of this week’s ECB rate meeting. In FX, the US dollar strengthened against major currencies.