The "Mother of All Bubbles": Are We Approaching a Market Top?
The Financial Times recently referred to the current market as the "mother of all bubbles," a provocative statement reflecting concerns about excessive valuations, concentrated trading in a handful of stocks, and diminishing future returns.
In this post, I’ll examine seven key signals that suggest we could be nearing the peak of this extended bull market.
Yesterday (Wednesday), U.S. stocks already plunged, with all three major indexes posting their biggest daily decline in months, as a result of the Fed signalling a slower easing pace in 2025.
(the VIX surged to over 74% on Wednesday (the second-largest spike in history) to end Wednesday at 27.62)
I’ll also discuss what these signals mean for your portfolio and offer actionable insights.
Signal 1: Concentration in the Magnificent Seven
Thomas Peterffy, founder of Interactive Brokers, recently highlighted a startling trend: over 70% of trading volume on IBKR’s platform is concentrated in just seven stocks—the so-called "Magnificent Seven."
While these companies dominate the U.S. market, they don’t make up 70% of its overall capitalization, let alone the global market.
Arguably, the overconcentration in a small group of stocks, coupled with rising leverage, is a classic sign of market exuberance and vulnerability.
Peterffy also shared another data point during a Goldman Sachs conference: margin loans have surged by 16% over the last three months. He expressed concern, saying:
This statement underscores two risks: (1) inflated valuations (according to Peterffy) and (2) the fragility introduced by excessive leverage.
A sudden market drop could lead to widespread margin calls, exacerbating the selloff.
Signal 2: Warren Buffett’s Record Cash Position
Warren Buffett, a name synonymous with prudent investing, has been raising cash to unprecedented levels at Berkshire Hathaway. The company's cash reserves now exceed $300 billion—more than the value of its equity portfolio.
This conservative positioning reflects both caution about market valuations and an opportunistic approach to benefit from a future equity meltdown.
Initially, I thought that the record level of cash held by Buffett was a result of Apple's stock being overvalued, and since Apple at one point represented more than 50% of the Oracle of Omaha's stock portfolio, it's only natural that once Buffett significantly reduces that position, Berkshire's cash levels will rise to unprecedented levels.
However, I’ve been discussing this with Tiho Brkan privately who rightly pointed out that Apple’s valuation has arguably also been extended during the 2021 period and Buffett did not really touch that position back then. So does Buffett’s recent portfolio activity indicate that Buffett is getting ready for a sharp selloff? He's got decades of experience and he may believe that "something is in the air". Tiho Brkan seems to think so:
In his 2024 annual letter, Buffett emphasized the importance of maintaining liquidity during times of market uncertainty.
His record cash position sends a clear message: attractive opportunities are scarce, and patience is key.
TL;DR: When the Oracle of Omaha prioritizes cash over stocks, it’s a signal for investors to critically assess the risk/reward balance of their portfolios.