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How to Navigate Fears of a Market Bubble
By Joanna Fredericks
Financial Advisor, AUM Partners
Markets continue to set new highs, with artificial intelligence stocks contributing to recent momentum.
This has prompted the question: "Are we in a bubble?"
While concerns are understandable, history suggests that bubble fears often reflect investor psychology as much as market fundamentals.
And the result?
Short-term uncertainty — but also long-term lessons for disciplined investors.
Why Bubble Concerns Surface
Market history shows that investors frequently worry about bubbles that never fully form.
- After 2008, "bubble" concerns persisted, yet that decade became the longest bull market on record.Source: Bloomberg, FactSet
- Earlier this year, the S&P 500 Index declined 19% before rebounding within three months.- FactSet
Short-term pullbacks occur regularly. Attempting to time them can risk missing recoveries.
Valuations Require Context
Valuation measures such as the Shiller P/E ratio currently sit above long-term averages.
- Robert Shiller, Yale
This suggests higher prices relative to earnings, but it does not reliably predict near-term returns.
Key reminders:
- Valuations reflect what investors are willing to pay based on expectations, not guarantees of future outcomes.
- Strong fundamentals can allow higher valuations to persist.
- Current market leaders generally show stronger profitability compared with many companies during the 1990s tech bubble.
While valuations can adjust downward if prices fall, they can also improve through earnings growth.
Diversification Helps Manage Risk
Some areas of the market trade at higher valuations (e.g., Large Growth), while others such as Value or Small Cap stocks reflect different valuation profiles.
- FactSet
- By Style/Size: Valuations differ across categories, providing investors with potential opportunities for balance.
- By Sector: AI-related companies are concentrated in Technology, Communication Services, and Consumer Discretionary. Other sectors, such as Financials and Industrials, have exhibited different valuation dynamics.
These examples highlight why diversification across multiple areas may help reduce concentration risk. This does not suggest that any specific style or sector will outperform.
Time Is an Investor's Advantage
History shows that patient investors are often rewarded over longer horizons.
- S&P Dow Jones Indices
- Even severe declines — such as those during the tech and housing bubbles — appear less disruptive when viewed over decades.
- Approaches such as dollar-cost averaging can help manage volatility by spreading investments over time.
- Starting at lower valuations may improve returns, but maintaining discipline is often more important than timing entries.
Weekly Market Stats
| INDEX | CLOSE | WEEK | YTD |
|---|---|---|---|
| Dow Jones Industrial Average | 46,315 | 1.0% | 8.9% |
| S&P 500 Index | 6,664 | 1.2% | 13.3% |
| NASDAQ | 22,631 | 2.2% | 17.2% |
| MSCI EAFE* | 2,753.66 | -0.2% | 21.7% |
| 10-yr Treasury Yield | 4.13% | 0.1% | 0.2% |
| Oil ($/bbl) | $62.36 | -0.5% | -13.1% |
| Bonds | $100.29 | -0.2% | 6.2% |
*4-day performance ending on Thursday. Sources: FactSet, Bloomberg.
The Week Ahead
Disclosures
Past performance is not a guarantee of future results. Market indexes are unmanaged and cannot be invested in directly. Investing involves risk, including loss of principal. This commentary is for informational purposes only and does not constitute personalized investment advice. Sources include Bloomberg, FactSet, Federal Reserve, S&P Dow Jones Indices, and AUM Partners research as of September 24, 2025.
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How to Navigate Fears of a Market Bubble
By Joanna Fredericks
Financial Advisor, AUM Partners
Markets continue to set new highs, with artificial intelligence stocks contributing to recent momentum.
This has prompted the question: "Are we in a bubble?"
While concerns are understandable, history suggests that bubble fears often reflect investor psychology as much as market fundamentals.
And the result?
Short-term uncertainty — but also long-term lessons for disciplined investors.
Why Bubble Concerns Surface
Market history shows that investors frequently worry about bubbles that never fully form.
- After 2008, "bubble" concerns persisted, yet that decade became the longest bull market on record.Source: Bloomberg, FactSet
- Earlier this year, the S&P 500 Index declined 19% before rebounding within three months.- FactSet
Short-term pullbacks occur regularly. Attempting to time them can risk missing recoveries.
Valuations Require Context
Valuation measures such as the Shiller P/E ratio currently sit above long-term averages.
- Robert Shiller, Yale
This suggests higher prices relative to earnings, but it does not reliably predict near-term returns.
Key reminders:
- Valuations reflect what investors are willing to pay based on expectations, not guarantees of future outcomes.
- Strong fundamentals can allow higher valuations to persist.
- Current market leaders generally show stronger profitability compared with many companies during the 1990s tech bubble.
While valuations can adjust downward if prices fall, they can also improve through earnings growth.
Diversification Helps Manage Risk
Some areas of the market trade at higher valuations (e.g., Large Growth), while others such as Value or Small Cap stocks reflect different valuation profiles.
- FactSet
- By Style/Size: Valuations differ across categories, providing investors with potential opportunities for balance.
- By Sector: AI-related companies are concentrated in Technology, Communication Services, and Consumer Discretionary. Other sectors, such as Financials and Industrials, have exhibited different valuation dynamics.
These examples highlight why diversification across multiple areas may help reduce concentration risk. This does not suggest that any specific style or sector will outperform.
Time Is an Investor's Advantage
History shows that patient investors are often rewarded over longer horizons.
- S&P Dow Jones Indices
- Even severe declines — such as those during the tech and housing bubbles — appear less disruptive when viewed over decades.
- Approaches such as dollar-cost averaging can help manage volatility by spreading investments over time.
- Starting at lower valuations may improve returns, but maintaining discipline is often more important than timing entries.
Weekly Market Stats
| INDEX | CLOSE | WEEK | YTD |
|---|---|---|---|
| Dow Jones Industrial Average | 46,315 | 1.0% | 8.9% |
| S&P 500 Index | 6,664 | 1.2% | 13.3% |
| NASDAQ | 22,631 | 2.2% | 17.2% |
| MSCI EAFE* | 2,753.66 | -0.2% | 21.7% |
| 10-yr Treasury Yield | 4.13% | 0.1% | 0.2% |
| Oil ($/bbl) | $62.36 | -0.5% | -13.1% |
| Bonds | $100.29 | -0.2% | 6.2% |
*4-day performance ending on Thursday. Sources: FactSet, Bloomberg.
The Week Ahead
Disclosures
Past performance is not a guarantee of future results. Market indexes are unmanaged and cannot be invested in directly. Investing involves risk, including loss of principal. This commentary is for informational purposes only and does not constitute personalized investment advice. Sources include Bloomberg, FactSet, Federal Reserve, S&P Dow Jones Indices, and AUM Partners research as of September 24, 2025.
Scroll to explore the full newsletter
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How to Navigate Fears of a Market Bubble
By Joanna Fredericks
Financial Advisor, AUM Partners
Markets continue to set new highs, with artificial intelligence stocks contributing to recent momentum.
This has prompted the question: "Are we in a bubble?"
While concerns are understandable, history suggests that bubble fears often reflect investor psychology as much as market fundamentals.
And the result?
Short-term uncertainty — but also long-term lessons for disciplined investors.
Why Bubble Concerns Surface
Market history shows that investors frequently worry about bubbles that never fully form.
- After 2008, "bubble" concerns persisted, yet that decade became the longest bull market on record.Source: Bloomberg, FactSet
- Earlier this year, the S&P 500 Index declined 19% before rebounding within three months.- FactSet
Short-term pullbacks occur regularly. Attempting to time them can risk missing recoveries.
Valuations Require Context
Valuation measures such as the Shiller P/E ratio currently sit above long-term averages.
- Robert Shiller, Yale
This suggests higher prices relative to earnings, but it does not reliably predict near-term returns.
Key reminders:
- Valuations reflect what investors are willing to pay based on expectations, not guarantees of future outcomes.
- Strong fundamentals can allow higher valuations to persist.
- Current market leaders generally show stronger profitability compared with many companies during the 1990s tech bubble.
While valuations can adjust downward if prices fall, they can also improve through earnings growth.
Diversification Helps Manage Risk
Some areas of the market trade at higher valuations (e.g., Large Growth), while others such as Value or Small Cap stocks reflect different valuation profiles.
- FactSet
- By Style/Size: Valuations differ across categories, providing investors with potential opportunities for balance.
- By Sector: AI-related companies are concentrated in Technology, Communication Services, and Consumer Discretionary. Other sectors, such as Financials and Industrials, have exhibited different valuation dynamics.
These examples highlight why diversification across multiple areas may help reduce concentration risk. This does not suggest that any specific style or sector will outperform.
Time Is an Investor's Advantage
History shows that patient investors are often rewarded over longer horizons.
- S&P Dow Jones Indices
- Even severe declines — such as those during the tech and housing bubbles — appear less disruptive when viewed over decades.
- Approaches such as dollar-cost averaging can help manage volatility by spreading investments over time.
- Starting at lower valuations may improve returns, but maintaining discipline is often more important than timing entries.
Weekly Market Stats
| INDEX | CLOSE | WEEK | YTD |
|---|---|---|---|
| Dow Jones Industrial Average | 46,315 | 1.0% | 8.9% |
| S&P 500 Index | 6,664 | 1.2% | 13.3% |
| NASDAQ | 22,631 | 2.2% | 17.2% |
| MSCI EAFE* | 2,753.66 | -0.2% | 21.7% |
| 10-yr Treasury Yield | 4.13% | 0.1% | 0.2% |
| Oil ($/bbl) | $62.36 | -0.5% | -13.1% |
| Bonds | $100.29 | -0.2% | 6.2% |
*4-day performance ending on Thursday. Sources: FactSet, Bloomberg.
The Week Ahead
Disclosures
Past performance is not a guarantee of future results. Market indexes are unmanaged and cannot be invested in directly. Investing involves risk, including loss of principal. This commentary is for informational purposes only and does not constitute personalized investment advice. Sources include Bloomberg, FactSet, Federal Reserve, S&P Dow Jones Indices, and AUM Partners research as of September 24, 2025.
Scroll to explore the full newsletter
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