Things have been looking rosy on the stock markets this year, but beware of rose-colored glasses looking to the future.
In July, August and September of 2025, the Nasdaq Composite recorded 27 new highs, followed by the S&P 500 with 24 and Dow Jones Industrial Average with 12.
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Now a growing number of experts warn that these new highs could be followed by new lows — a dire risk to the 62% of Americans who collectively own stocks worth $51 trillion. (1)
An insane amount of money? Some say yes, bubble territory. One measure is the Buffett Indicator, or the stock market capitalization-to-GDP ratio — used to determine whether a market is undervalued or overvalued.
If the total value of stocks on the stock market is more than 115% of GDP, it’s seen as overvalued. According to Fortune, the current market value is more than three times that: 363% of GDP.
So by the Buffett Indicator, it’s extremely overvalued. It’s floating even higher than when the Buffett Indicator reached 212% just before the dot-com bubble burst in the late 1990s.
And just like the highs that preceded that crash, these highs are fueled by speculation in technology. But the scale is much bigger.
MacroStrategy Partnership estimates total investment in AI is 17 times investment in dot-com stocks when that bubble burst. (2)
Another concern is that most of the investment is concentrated in the Magnificent 7 tech giants, with Apple and Meta accounting for more than half of the S&P 500’s gain in 2023 and 2024. (3) In 2025, AI stocks doubled the return of the overall stock market, according to Morningstar.
If year-end earnings come in below expectations, or if capital expenditure on AI infrastructure slows, today’s lofty stock valuations could plummet, bringing the economy and individual Americans along for the ride.
Even if you’re not invested directly in individual stocks but have an ETF that tracks an outperforming index, like the S&P 500 or the Nasdaq Composite, you could be exposed to sector risk if the AI frenzy cools.
Here’s what’s at risk and how to protect yourself.
One thing to be wary of is your own spending. According to the “wealth effect” theory, we tend to spend more when we see our assets appreciate in value on paper.
