Tech selloff stirs bubble fears in US stock market

As of June 30, 2026, the U.S. stock market exhibits bubble fears led by soaring valuations and volatility, particularly within the technology and semiconductor sectors. The BofA Bubble Risk Indicator signals high risks, scoring 0.91 for semiconductors and 0.82 for technology. The Buffett Indicator is at 218%, near record levels indicating overvaluation compared to GDP. Despite some market steadiness supported by solid earnings, investor skepticism about high growth sustainability prevails, particularly regarding debt-fueled investments in AI. Sentiment metrics show mixed signals, with some bullish outlooks but no extreme euphoria, prompting suggestions for prudent diversification amid potential risks.

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Summary
BofA's Bubble Risk Indicator flashes danger for semiconductors and technology
The Buffett Indicator reached 218% in the first quarter, near the prior quarter's 219% record
The S&P 500 price-to-sales ratio sits at 3.22 versus a 1.84 long-term average, LSEG data shows

NEW YORK, June 30 (Reuters) - Soaring stock market valuations, dramatic swings in the market value of trillion-dollar companies, and periodic sharp selloffs have fueled growing concerns that parts of the U.S. stock market may be in a bubble.

Investors have long been skeptical of the astronomical gains ‌in AI and semiconductor stocks, questioning whether Wall Street is inflating another speculative bubble.

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Those fears increased last week after tech stocks fell sharply, driven by concerns over debt-funded AI spending and worries over a hawkish Federal Reserve.

Stocks have steadied as investors see sentiment, broadening market participation and solid earnings supporting the rally — but concerns remain.

MARKET FRAGILITY MEASURES RISE

"Looking through the lens of valuations, positioning, and sentiment ... all measures of asymmetry and risk are flashing amber," said Oliver Shale, investment specialist for the U.S. at Britain-based Ruffer.

Some measures of valuation have scaled near-record peaks while certain sentiment gauges are flying high.

"None of this is to say that the end is nigh, but that is a fragile setup for any market," Shale said.

Indeed, BofA Global ⁠Research's proprietary Bubble Risk Indicator, which scores assets on a scale of 0 to 1, with 1 signaling extreme bubble-like price action, stands at 0.91 for the PHLX Semiconductor Sector and 0.82 for the Technology Select Sector (.IXT), opens new tab.

Bubble trouble

BofA Bubble Risk indicator shows rising risks for US tech & semis

Nasdaq-

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Technology

Select Sector

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Semiconductor Sector

0.000.100.200.300.400.500.600.700.800.90

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Note: BofA Global Research's proprietary Bubble Risk Indicator scores assets on a scale of 0 to 1, with 1 signaling extreme bubble-like price action and 0 signaling none

Source: BofA Global Research Saqib Ahmed

VALUATION WORRIES

The U.S. stock market's valuation has reached levels historically associated with major downturns, as measured by the Buffett Indicator — named after investor Warren Buffett.

The indicator, which compares total U.S. stock market capitalization with gross domestic product, stood at 218% for the first quarter, just shy of the record high of 219% touched in the prior quarter.

The Buffett Indicator suggests the stock market is strongly overvalued relative to GDP

The S&P 500 price-to-sales ratio currently sits at 3.22, according to Tajinder Dhillon, head of earnings research at LSEG. That is well above its long-term historical average of 1.84, signaling stretched market valuations.

"Nearly every S&P 500 valuation metric is higher than it's ever been except, possibly, PE ratios," said Mark Spiegel, managing member and portfolio manager at Stanphyl Capital Partners.

S&P 500 price to sales ratio

The S&P 500 price-to-sales ratio currently sits well above its long-term historical average, a level that has historically been associated with stretched market valuations.

The S&P 500 price-to-sales ratio currently sits well above its long-term historical average

00.20.40.60.811.21.41.61.822.22.42.62.833.2

Source: LSEGSaqib Ahmed

While the S&P 500 price-to-earnings ratio, the most widely cited valuation metric for equities, has not reached the extreme levels seen during past market bubbles — supported in part by robust earnings growth — some investors remain skeptical.

"There's a solid argument that the 'E' (earnings) in those ‌ratios is an ⁠unsustainable bubble in itself," Spiegel said.

The S&P 500's price-to-earnings ratio stands at 20.2 times expected 12-month earnings, compared with 25.2 during the dotcom bubble, according to LSEG Datastream.

The surge in AI-driven chip demand has minted big winners on the supply side, but doubts persist about returns for those footing the bill.

"The folks selling the picks and shovels are in incredibly good stead. Those buying them still have to prove that the billions and billions of dollars they’re spending is worth it," JJ Kinahan, head of retail expansion and alternative investment products at Cboe Global Markets, said in a note.

SENTIMENT MEASURES SHOW MIXED SIGNALS

Sentiment and positioning measures are ⁠more mixed.

BofA's June global fund manager survey showed investors remain bullish, though sentiment eased slightly from May.

In the latest American Association of Individual Investors (AAII) Sentiment Survey, bearish views fell noticeably while bullish sentiment jumped, pushing the bull-bear spread to 8.8% — above its historical average of 6.5% for only the second time in 20 weeks. It is well short of its 44.2% peak, suggesting no signs of euphoria.

Performance gap between the S&P 500 and the equal weighted index is well off highs

Some investors also take heart ⁠from a recent broadening in market leadership. After spiking to around 14 percentage points in early 2026, the gap between the S&P 500 (.SPX), opens new tab and its equal-weight counterpart (.SPXEW), opens new tab has been ticking lower in recent sessions, now sitting at roughly 3 points, signaling a meaningful broadening of the rally.

"A red flag is when sentiment and positioning is at extremes, and that's not what we see now," Angelo ⁠Kourkafas, senior global investment strategist at Edward Jones, said.

While the market may not be screaming danger just yet, investors would be prudent to stay diversified, Brian Jacobsen, chief economic strategist at Annex Wealth Management, said.

"It does look like too many people are assuming fat margins and high growth rates are here to stay, while I’m a bit more skeptical about that outlook."

Reporting by Saqib Iqbal Ahmed in New York; Additional reporting by Laura Matthews and Lewis Krauskopf in New York; Editing by Megan Davies and Matthew Lewis

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