President Donald Trump likes to brag about the stock market, but finance experts are warning that the current positive trends are likely illusory.
Quoting investor Michael Burry, who famously covered the subprime mortgage crisis in the book and movie “The Big Short,” Fortune senior editor-at-large Shawn Tully wrote on Wednesday that “the stock market has ‘jumped the shark,’ and posited that ‘a complete reversal’ in the soaring, tech-laden NASDAQ 100 is at hand. Burry noted the resemblance between today’s price action and the waning days of the dot.com craze—adding that it’s feeling like ‘the last months of the 1999-2000 bubble.’”
Burry is not alone in offering this warning. Tully also quoted veteran Paul Tudor Jones warning that the current trend of tech-concentrated economic growth reminds him of 1999 and raised the alarm that if the AI bubble bursts like the dot.com craze did, it could cause “breathtaking kinds of corrections.” From there Tully offered his own analysis.
“The economic fundamentals overall look mediocre at best,” Tully wrote. “The current scenario headlines inflation that’s proving both high and extremely sticky, as underlined once again in the April CPI report on May 12 that showed consumer prices advancing a hot 3.7% in the prior 12 months. GDP growth’s ho-hum, the 10-year Treasury yield’s stuck in the elevated mid-4% range, and ultra-tall energy prices keep digging into consumers’ wallets, hiked by a war that keeps dragging on. Not to mention vanishing hopes that the Fed will juice the market via big rate cuts. “
Tully went on to explain how “profits are subject to huge swings that when they’re unsustainably high,” as appears to be the case with the investments in AI that are based on what the technology promises to produce rather than any actual results. He also points out, when the stock market is analyzed using the cyclically-adjusted price earnings ratio or CAPE, it suddenly appears a whole lot less attractive.
“The incredible run we’re witnessing may have a simple explanation: Sometimes, markets just go crazy,” Tully concluded. “That argument could be wrong. But it makes just as much sense as the Wall Street hype that paints a gray backdrop as a scene of brilliant sunshine.”
Moody’s chief economist Mark Zandi also recently pointed out that the hype on Wall Street is not matched by the facts. Describing the takes from expert Wall Street analysts, Zandi wrote last week that "we'd likely be in a recession already if not for the AI investment-driven boom." Despite these warning signs that the stock market may soon become an economic problem rather than an asset, the Trump administration has repeatedly touted its supposed strength in order to defend the administration.
Controversially former Attorney General Pam Bondi defended the Trump administration from accusations of covering up his and his associates’ ties to the late pedophile Jeffrey Epstein by citing the stock market, specifically how the Dow Jones Industrial Average spiked to 50,000 on that Tuesday. After Democrats shouted, "What does the stock market have to do with it?" Bondi incorrectly claimed, "What does the Dow have to do with anything? That's what they just asked. Are you kidding?"
