The stock market is likely facing a bubble as the benchmark indexes keep reaching new highs.
Socking away money in alternative investments is a common method for an investor to diversify his/her investments, but when friends who are unfamiliar with the stock market start to ask about buying NFTs, it could be a sign of trouble ahead, wrote Bret Jensen in a recent Real Money Pro column.
“Earlier this week, I had a good friend who knows nothing about investments, ask me if she could borrow a significant amount of money to ‘invest’ in buying some NFTs,” he wrote. “I told her she would be much better off over the long-term maxing out her 401(k) contribution at her new job.”
If the stock market has a large correction in the next quarter, the request from the friend could be viewed as “’inflection point’ that further confirmed for me how toppy this market feels right now,” Jensen wrote.
The new all-time highs for the market are not a good sign, he wrote.
“It seems every week the S&P 500 and Nasdaq make new all-time highs even as one sees more and more signs of bubbles everywhere,” Jensen wrote.
A chart posted by Real Money’s Doug Kass recently demonstrates “how overvalued the market is by comparing how equity’s market cap has grown to be more than two times GDP, and how that is uncharted territory,” he wrote.
Rising property valuations of homes and the interest in NFTs are also signs of a bubble, Jensen added.