Copyright Forbes
As Sir John Templeton famously said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” So has that final stage arrived? Has euphoria finally gripped the market and has the bubble truly burst? From the headlines, it might feel that way. But beneath the surface, the data tells a different story. This is not a market collapsing under its own weight; it’s a market catching its breath after a long, relentless run. The reality is that we are still in a bull-market uptrend, not a post-bubble collapse. Markets have always cycled through phases of enthusiasm, correction, and renewal. Since 1900, corrections of 10% or more have occurred roughly once per year on average. They are the market’s way of resetting valuations and tempering sentiment not a sign of structural decay. Today’s market action looks more like digestion than destruction. Earnings remain resilient, inflation is moderate, and consumer demand particularly in technology and services remains robust. The current environment is uneasy and anxious but far from euphoric. History shows that the best buying opportunities rarely emerge when things feel comfortable. The Bubble That Hasn’t Burst If investors are looking for evidence of euphoria giving way to panic, they’ll have a hard time finding it. Yes, valuations in certain sectors are high, but they remain anchored to fundamentals. Corporate profits, cash flow, and innovation are still expanding, not contracting. Artificial intelligence, in particular, continues to be cited as Exhibit A in the “bubble” debate. Yet it is not a bubble in the classic sense. While valuations are stretched, the sector’s leading companies Nvidia, Microsoft, Alphabet, and others, are generating real earnings and massive free cash flow. The build-out of AI infrastructure from chips to data centers to software has genuine economic momentum behind it. That said, competition is heating up fast. Venture capital and public markets alike are flooding money into unproven AI ventures, creating an inevitable shakeout ahead. Volatility will rise, consolidation will come, and the industry will separate durable winners from speculative pretenders. But unlike 1999, this revolution is not built on vaporware, it’s built on utility, productivity, and profits. If there’s a bubble here, it’s a bubble of progress. AI is the new electricity and expensive to develop but indispensable once adopted. Understanding Market Tops Unlike market bottoms, which can often be identified by a sharp rebound and renewed business confidence after long stretches of anemic buying, market tops take weeks to form. They develop quietly as institutional investors shift from accumulation to distribution. One of the most effective ways to detect this shift is by tracking “distribution days” over a 25-trading-day period. A distribution day occurs when the S&P 500 or Nasdaq closes down 0.2 % or more on heavier volume than the prior day. A rising number of these days suggests large investors are selling into strength. Historically, when markets rack up five or more distribution days within a few weeks, it signals a trend weakening. At present, however, this signal remains muted. Distribution days have not surged, and institutional buying still outweighs selling. The uptrend remains intact. What we’re witnessing is not a mass exodus but a recalibration. Three Signs of a Market Top And Which One Is Flashing Yellow While it’s wise to lean into corrections, investors must also remain vigilant for signals of true market tops and periods when risk and speculation have overtaken reason. Three of the clearest indicators are: 1. A surge in IPOs and new listings. When a wave of companies rushes to go public and investors eagerly buy anything with a ticker, it’s usually late in the cycle. The 1999 tech boom and the 2021 SPAC craze both fit this pattern. 2. Valuations detach from fundamentals and margin debt surges. This is the warning light flashing now. The Shiller CAPE ratio, a cyclically adjusted measure of valuation, recently reached levels above 40 territory visited only twice before, in 1929 and 1999, as The Wall Street Journal noted (October 2025). At the same time, margin debt money borrowed by investors to buy more stocks has climbed to roughly $1 trillion, near its all-time high. When leverage increases even as valuations stretch, risk accumulates silently. 3. Euphoric sentiment and “this-time-is-different” thinking. When financial talk shows and dinner conversations all revolve around the same handful of “can’t-miss” stocks, and when investors stop asking about risk, you are likely nearing the top. At present, only the second indicator, valuations and debt, is flashing yellow. IPO volumes remain moderate, and while enthusiasm for AI borders on speculative in tone, it is not the same kind of empty euphoria that defined the dot-com bubble. Lessons from History Corrections should not be feared; they should be studied and used. Over the past century, the S&P 500 has returned roughly 10 % annually but only for those who stayed invested through fearful moments. As Peter Lynch reminded investors, “Far more money has been lost by investors preparing for corrections or trying to anticipate them than has been lost in the corrections themselves.” The current pullback is offering investors a chance to reposition into quality companies at more reasonable prices. Valuations have eased slightly, sentiment has cooled, and fear, not greed, is driving behavior. Those are the conditions that breed long-term success. The Takeaway: The Bull Still Lives The market has not imploded. It is pausing, not collapsing. AI remains a generational theme. Economic fundamentals are intact. Institutional behavior confirms that the bull trend endures. If this were the end, we’d see euphoria, speculative IPO waves, and a surge in margin debt across the board. Instead, we see caution, discipline, and a recalibration of risk. This is not a bubble bursting; it’s a market breathing. The lesson? Keep your head when others are losing theirs. Corrections cleanse excess, renew discipline, and prepare markets for the next leg higher. The bubble hasn’t burst, it’s simply balancing. The bull market, though tested, remains very much alive. For disciplined investors, the opportunity lies not in retreat, but in readiness.
