Market Thoughts: Same as it ever was?

As markets press higher, the operative question is whether we’re in a bubble. I don’t believe we are. We are, however, on the boil. We’re starting to see some of the very early signs seen in prior investment cycles that went from froth to frenzy.

Headline-hustling naysayers are right to revisit the early 2000s. A gold rush moment that rhymes a bit with current market momentum. Both driven by big tech. Contrasts between the two periods are important to understand. Fundamentals matter.

The early noughts offered up riveting snake-oil-salesman like charm. Initially dismissed, then embraced. Hype and ‘eyeball clicks’ fed into what became hyperbolic folly. A gospel of greed grounded in belief of free money. There’s no such thing.

There were few eye-popping positive big tech earnings back then. In many cases, negative earnings. Capex and investment added to the excitement. That gave a bounce to growth and inflation. Headline inflation was 3.8% year-over-year (yoy) in early 2000. Growth was running at 5.2% yoy by June 2000. Fun, fun, fun.

Big tech capex in the noughts was financed. Lots of it. Unlike today, there weren’t outsized earnings to reinvest. That said, we are beginning to see AI-related big tech pivoting to debt capital markets for capex spending. That’s worth paying attention to. Too much leverage can bite back viciously.

In round numbers, we’ve seen about a trillion dollars in investment grade issuance this year. That’s up almost 25% from last year, with +20% coming from big tech companies. We’re seeing the same in high yield markets; about $150bn in new issuance. That’s up 35-40% from last year, with something like +40% coming from tech and communication services.

Leverage is nowhere near where it was in the noughts for big tech and related companies. Again, the difference being earnings and the fact that capex has predominantly been financed (to date) from free cash flow. We may be on the boil, but as long as earnings hold a debt finance boom isn’t yet the worry.

Earnings growth is increasing faster than forecasts. That’s helped keep market multiples in check, allowing investors to feel good about the market’s ability to press higher. Growing into future earnings. But as I’ve said before, forward multiples look reasonable as long as earnings deliver.

We’re in the midst of profound secular change. The challenge for investors is that we won’t know the lasting outcome and impact for several years. Investors in the tech bubble of the late ‘90s were right in identifying secular change. It took a decade to prove out. Euphoria and sadness along the way.

My gold rush analogy is useful to reflect on then and now. If you can’t know the winners—because what’s being built has yet to be seen in bearing—you believe ‘picks and shovels’ are made of gold. You buy momentum stocks where the digging’s fast and furious.

In any burgeoning bubble, leverage (or deleveraging) inevitably becomes the catalyst that bursts it. Leverage in public markets isn’t ringing alarm bells presently. It was then. However, across pockets of the shadow banking complex we’ve begun to see a few wobbles.

There are always going to be creditors that make bad loans, in every market cycle. Recognize the sparks that can tip bad due diligence into something systemic. When everyone rushes to the door, bad things happen. As we saw in the financial crisis, keep a close eye on the most liquid pools of credit.

Within shadow banking, private credit has the structural ‘benefit’ of being illiquid. There is no such thing as semi-liquid. An asset is liquid or isn’t. Headlines about private funds ‘unable’ to meet redemptions miss a critical point. Those funds are structurally designed to reflect the illiquid nature of their investments.

It’s why privates constrain, as a percentage of assets, total redemptions in any given quarter. Their redemption gates are being met. Investors are being paid for illiquidity. When contractual redemptions can’t be met, there’s a problem. Which takes me back to ‘free’ money.

Ensure you’re being paid for the risks you’re taking. Also, illiquidity. Anchor on fundamentals. Invest in companies where you understand how profitability is generated. Cash money. Be mindful of leverage. With apologies to Willy Wonka, be wary the sellers of dreams. Celebrate the dreamers.

“Into the blue again, after the money’s gone / Once in a lifetime, water flowing underground / Same as it ever was, same as it ever was, same as it ever was…” Talking Heads

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 6/4/26

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