00:06 Julie
Stocks at record highs after the Fed's first rate cut of the year, which Chair J. Powell calling it a risk management move to cushion a cooling labor market. But with valuations now nearing levels we haven't seen since the late 1990s, the question is whether this run is justified or if we're drifting into bubble territory. For more on what strategists are saying, let's bring in Yahoo Finance's Ally Canal.
00:29 Julie
Hi Ally.
00:30 Ally Canal
Hi Julie. and yes, historically, Fed easing at market peaks have often led to more gains, but now valuations are pushing towards those higher levels. and Wall Street is divided over whether this rally is very sustainable moving forward. Some strategists argue AI driven earnings growth justifies today's multiples. Others warn that Fed cuts could spark a dangerous melt-up, while some skeptics see bubble risks building as inflation lingers. Here's what they told us this week.
01:01 Speaker A
I think it can be justified and if you look at the earnings prospects for these companies, you're talking, you know, earnings expectations that have come up.
01:14 Speaker B
It's just amazing to see the market pretty much has selective hearing right now and all it's hearing is Fed cuts, uh, which are great news for risk assets. It almost feels like bad news is good news and good news is good news because all of it means that the Fed here is going to continue cutting. The S&P 500 right now is trading at 22 and a half times forward earnings. The most expensive they've ever been in the late 90s was was 24 times. So we're certainly getting up there.
01:43 Speaker C
We're in the camp that thinks that inflation will be stubborn. and therefore, we expect at some point in time this incredible mania, this this this bubble that has now been exacerbated by the the race for AI, what what when it breaks, there is going to be a lot of heartbreak because the S&P 500 is completely twisted up in the game.
02:08 Ally Canal
Now, Wall Street strategists have been hiking their price targets across the board citing Fed easing along with AI. They did warn that some volatility is warranted in the interim. So we'll see where stocks can end up, but in the meantime, those bubble risks, they are starting to become more of the conversation.
