As stocks soar to historical highs, some experts say conditions ripe

The stock market has been a roller coaster ride in recent weeks, with wild swings from day to day at times.

The major indices have also hit record after record this year as the as the economy roared back from pandemic lows and the government flooded the economy with stimulus cash.

The S&P 500 and Nasdaq Composite indices, for instance, closed at record-highs last month, besting highs that were only just set earlier in the year, and the Dow Jones Industrial Average of 30 large company stocks closed at a record-high a month prior. Despite a pandemic-battered economy, the S&P 500 and tech-heavy Nasdaq are both up approximately 30% compared to the same period a year ago, and the Dow is up more than 20%.

The trends have left some experts wondering whether the ground underlying the rapid growth of the market, fueled in part by a new crop of retail investors, is solid, or if there is a bubble building.

Risks abound, from the debt ceiling crisis to inflation fears and even China’s Evergrande saga, which have led to daily swings.

But even as markets have fallen on news, the newfangled hashtags like #BuyTheDip (which encourages market participants to buy rather than sell during these down periods) and #DiamondHands (encouraging investors to hold onto assets rather than sell) often trend on Twitter in tandem with the fear-ridden headlines. Even the Fed has warned of vulnerabilities associated with the “increased risk appetite” demonstrated by retail investor exuberance seen in the “‘meme stock’ episode.”

While the pandemic’s abrupt disruption to American life is another reminder that it’s impossible to predict the future, historical patterns and the precariousness of present market conditions have some economists warning that current growth rates may be unsustainable, especially amid inflation worries and potential tightening by the Fed of monetary policy.

Here’s what we know and don’t about the market landscape:

Key overvaluation indicator at highest level since the Dotcom bubble

One measure often used by economists to predict a potential asset price bubble is the cyclically adjusted price-to-earnings (CAPE) ratio, developed by economist and Yale University professor Robert Shiller. The measure looks at firms’ inflation-adjusted real earnings per share over a 10-year period to indicate possible over- or under-valuations.

Itay Goldstein, a professor of finance and economics at the University of Pennsylvania’s Wharton School of Business, told ABC News that the measure is essentially used as “an indication for whether the stock price is too high or not.”

When Shiller first published his research in 2000, he pointed to how high stock prices were at that…