Some recent developments point to a potential bubble bursting in US equities.
For one thing, there’s the market reaction to Nvidia’s results. As Ipek Ozkardeskaya, senior market analyst at Swissquote noted, Nvidia has been beating both earnings and revenue expectations since the beginning of the artificial intelligence boom in 2023, including last week when it announced a 78% year-on-year increase in quarterly revenues.
Although revenue from sales of its new-generation Blackwell chips alone was $1 billion above analyst expectations at $11 billion, she pointed out that Nvidia’s shares dropped 1.5% in after-hours trading. And she noted that some analysts are now saying Nvidia needs to grow at 30% a year for the next half-decade to justify its current valuation.
That kind of growth is not impossible, but such expectations suggest there is far more reason for downside than upside in current US equity valuations.
Then there is the latest outlook from veteran hedge fund manager Doug Kass, whose prediction in December that Nvidia’s shares would struggle has been proven right. He wrote in TheStreet Pro that the S&P 500 is likely to deliver “virtually zero upside and 15%+ downside” going forward. Hence, his hedge fund has started to sell holdings, preparing liquidity for a buying opportunity in the wake of a stock slide.
On Fox Business, economist Harry Dent predicted “the biggest single crash year we’ll see in our lifetimes” with a 92% plunge in the Nasdaq Composite, another voice among the many forecasting a “Trump recession” from the new administration’s policies, off the back of persistently high inflation and peaky equity markets.
Meanwhile, Warren Buffett’s Berkshire Hathaway has liquidated its roughly $22 million holdings apiece in State Street Global Advisors’ SPDR S&P 500 ETF Trust and the Vanguard S&P 500 ETF. Though the sums are not huge, their liquidation leaves Berkshire Hathaway without any exchange-traded fund holdings.
On the other hand, shares of Japan’s five major trading houses – Mitsubishi, Mitsui & Co, Sumitomo, Itochu and Marubeni – jumped on news that Buffett intended to increase investment in them beyond the $23.5 billion already committed, in some cases exceeding previously agreed 10% ownership thresholds. The move offers interesting perspectives on relative expectations going forward.
