Forget the ‘AI Bubble’. Are We Actually in an Everything Bubble?

If you’ve tuned into financial media over the past year, there’s a good chance you’ve heard an economist or other expert proclaiming that the stock market is entering a bubble. While television’s pundits may seem like alarmists, they’re not alone.

Everyone from JPMorgan Chase CEO Jamie Dimon to Amazon founder Jeff Bezos seems to agree that AI stocks are barreling towards — if not already in — a bubble. Historically high valuations have earned this corner of the market more than a few comparisons to the dot-com bubble of a generation ago.

“There’s a lot of speculation in the stock market that looks quite a bit like the previous tech bubble in the late 1990s,” says David Rosenberg, founder of Rosenberg Research. “The stock market has been caught in this generative AI frenzy,” he says.

The result, according to Rosenberg, is the expectation of accelerating profits and economic growth. That enthusiasm has grown beyond AI stocks, though. The market has been on a tear since April, with all of the S&P 500’s 11 sectors up on a year-to-date basis.

But beyond stocks, prices — from housing to hamburgers — have climbed to record levels, suggesting this could be an everything bubble.

What’s fueling the surge?

Economies typically don’t act like this. Prices for one type of goods or services usually rise at the expense of another. But the current marketplace seems to be defying the odds, and there isn’t an easy answer why.

Everything from gold and silver to car prices, rent and credit card interest rates are near historic highs. All the while, the S&P 500 continues to set new records.

According to Rosenberg, part of the reason it’s so hard to determine why is that there isn’t a single driving force. “Each individual asset class is responding to different variables,” he says. Here are a some of those factors, and how they are driving up prices across the economy.

Wall Street’s optimism lifts stocks

Comparisons to the dot-com bubble are inevitable, but economists say there are key differences about today’s market buoyancy. For one, the companies spending prodigiously on AI aren’t start-ups burning through venture capital. Instead, they’re well-established, mega-cap companies cranking out profits that routinely meet or beat analysts’ expectations.

Even if those expectations aren’t met, these are still companies with strong earnings and revenue streams, according to Rob Haworth, senior investment strategy director U.S. Bank Asset Management Group. “It’s early, I think, for ‘everything bubble’ talk,” he says. “We’re getting a push up in many assets, but it’s being followed by fundamentals,” Haworth says, including companies operating outside of AI.

Some of this reflects the ripple effect that AI spending has on other sectors of the economy: Haworth points to energy and utility stocks, which stand to benefit from data centers’ enormous electricity demand. Some market optimism is fueled by the promise of future innovations, such as the prospect of AI unlocking discoveries in biopharmaceuticals and improving medical diagnostics — an evolution Haworth says is already beginning to take place.

Despite that optimism, Haworth admits that risks remain, particularly regarding the Trump administration’s policies. “What we’re most worried about is if tariff implementation significantly changes consumer behavior or significantly increases corporate costs,” he says.

Nevertheless, the Buffett Indicator — which measures the stock market’s total valuation relative to U.S. GDP — has also reached an all-time high. In other words, the indicator is now higher than it was preceding the dot-com crash of 2000.

Immigration and trade policies are raising prices

The Trump administration’s trade and immigration policies have already sown chaos in boardrooms and balance sheets, with the government’s immigration crackdown being blamed for labor shortages in industries spanning agriculture, hospitality and construction. Fewer workers means companies have to pay more to attract scarce labor or invest in automation. Those higher costs get passed down through the supply chain and, ultimately, to consumers.

That’s on top of tariff costs. Although President Trump’s push for import duties on everything from motors to movies has only been partially successful, the abrupt reversal of a decades-long free trade agenda has thrown a wrench into the operations of American companies both large and small.

Nowhere, perhaps, is this more evident than in the housing market. A ratio of the S&P CoreLogic Case-Shiller U.S. National Home Price Index to income has risen sharply, passing the high-water mark previously reached in 2006 amid the housing bubble. Homes today cost roughly seven times Americans’ median household income — and mortgage rates today are considerably higher than they were in February 2022, the first time this ratio hit a level of seven.

That’s partly attributable to tariffs, which weigh heavily on the construction industry, imposing higher prices on everything from cement, lumber and copper wiring. Combined with higher labor costs resulting from the administration’s immigration policies, home prices have soared out of reach for many Americans.

Residential real estate is a tremendous economic engine, generating demand for everything from property insurance to patio furniture. A frozen housing market creates a chill over a much greater swath of commercial activity. “Housing is still the quintessential leading indicator… and nobody talks about the fact that housing prices are starting to roll over,” Rosenberg says. “That’s the canary in the coal mine.”

Food, housing and credit card debt surge for everyday Americans

Some of the run-up in prices across a wide spectrum of assets can be attributed to the concentration of wealth among affluent Americans, according to Mark Zandi, chief economist at Moody’s Analytics. “The wealthy are very, very wealthy, and there’s nowhere else for them to go,” he says.

Along with piling into stocks, these wealthy investors are diversifying into alternative assets. That includes private equity and private debt — asset classes that often preclude retail investors. They’re also investing in gold and other precious metals, which are outperforming the S&P 500 this year by a wide margin.

Meanwhile, widening inequality in the face of climbing food and housing costs could push the growing U.S. economy closer to an inflection point, as middle-class and lower-income Americans display increasing financial strain.

The cost of meat, poultry, fish and eggs rose 5.6% in August from the year prior, while prices of imported goods like coffee — which jumped an eye-opening 3.6% in a month and is up almost 21% from a year ago — have seen some of the sharpest increases. Even domestically-produced foods, especially ones that rely heavily on immigrant labor to harvest or produce, have risen substantially. Yale University’s Budget Lab estimates that if tariffs remain at their current levels, the cost of fresh produce will rise by more than 4% in the near term.

Ballooning levels of credit card debt and delinquencies have raised concerns about a debt bubble. Americans hold a near-record of more than $1 trillion in outstanding credit card debt, suggesting that many have turned to borrowing to fill the budget gaps. Despite the Federal Reserve’s new rate-cutting cycle, its impact has been smaller-than-expected for mortgage rates, while credit card interest rates remain near record highs.

Evidence is mounting that more Americans’ financial stability is cracking under the strain of their debts, particularly since the Department of Education resumed collections activity — including wage garnishment — on loans in default. Data from credit reporting bureau TransUnion found that the number of seriously delinquent student debtors who fell more than 60 days behind on personal loan payments jumped by 186% between December and June, while those who fell behind by more than 90 days on credit card bills during that same time period shot up by a whopping 479%.