As you get older there are moments that remind you that you are no longer young. These moments appear from nowhere and typically occur during an innocuous conversation with one of your children or perhaps a younger colleague. We have all done it, referenced a scene from Only Fools and Horses or Fawlty Towers and received a blank look from a Gen Z whippersnapper who has never even heard of these programmes, and is aghast at your very existence. During a conversation with a co-worker a few years back, I talked about writing a cheque. They had never even seen a real-life chequebook, let alone written one.
Before I drift into ‘old man shouting at a cloud’ territory (my family thinks I am already there 😲) let’s get to the point. One of these moments occurred two years ago. Oxford University Press’ word of the year for 2023 was Rizz. I am yet to hear anyone actually use this word, but for the benefit of people of a certain age, it is a slang term for romantic appeal or charm, i.e. to charm someone is to ‘rizz them up’.
The various dictionary organizations are yet to announce their word of the year for 2025, but I would suggest that this year’s ‘word’ of the year in markets must be All-Time High. Seemingly, not a day goes by without another market hitting it’s ‘all-time high’. Stock markets in Germany, France, Japan, the UK have all hit their ATH this year. So has Bitcoin, Gold, Silver and of course, the daddy of them all, the US stock market. The S&P 500 has been on a relentless rise since April and has hit all time highs so often I have lost count. This has been primarily driven by the big technology companies and the vast sums being spent on trying to get ahead in the AI race.
So just how expensive is the US market? Well, there are many different ways to measure valuations for companies/assets, and don’t worry I am not going to go through them all, but by whichever metric you want to use the US market is looking very expensive. The below chart, produced by MAN Group, show that over the last 225 years, there has only been 5 previous times in history when the market has been this expensive. On this chart 100% means most expensive the market has been in history, and 0% means it has never been so cheap. As you see in the box in the bottom right of the chart, on certain measures (price to book, market cap to GDP and dividend yield) the reading is brightly flashing 100%.
Now some of you are thinking, so what?, it doesn’t mean the market can’t keep going up. And so far this year, you would be right. Bubbles don’t burst just because the market looks expensive, and as we previously mentioned in ‘Defensively maybe?’ there are certain pockets of the market that still look reasonable value, but the concentration at the top end of the market is a real worry. We are also concerned about how inter-connected many of the AI / tech companies have become and the amount of money that is apparently going to be spent on AI is quite frankly ridiculous. It is impossible to know what will be the particular pin that bursts this bubble, but we do know that many of these tech companies are priced for perfection and there is little margin for error if growth momentum softens or policy support fades.
Based on previous cycles when everything got a bit ‘frothy’ eventually the market corrects, and the investment returns over the subsequent decade are pretty lacklustre. This time will be no different.
The one upside to being a bit older is the experience you have gained. Having invested through many market cycles, you learn not to get too carried away, remain patient and keep working hard to find value. And most importantly, never ever use the word ‘rizz’ in public unless you are a teenager!
Ironically, Collins English Dictionary’s word of the year in the 2023 was ‘AI’. I love it when a plan comes together 😉
