Broader sentiment remains bullish, with the S&P making new all-time high underscoring resilience. AI-driven momentum, highlighted by AMD’s multibillion-dollar OpenAI partnership (boosting AMD +23.7%), has broadened participation beyond mega-caps, lifting small-caps (Russell 2000 closed above 2,500 for the first time). Yet, technical and fundamentals indicators warn of a potential shakeout amid overbought conditions. The rally from the April low is complete in five waves, the Warren Buffet indicator has reached record high above previous levels when the stock market entered a correction, and optimism is high. These are bearish signs, however what most people don’t understand is that markets can continue to climb. There is not a single timing tool that can predict with precision when the stock market will peak.
We use various indicators and when they point to a top we prepare for a reversal. This reversal could come now or next week or next month. Like in 2000, the euphoria started in 1999 yet the top occurred in 2000. In a period of euphoria you see big deals being done, like in 2000 when America Online (AOL), a leading internet service provider, agreed to acquire Time Warner, a media and entertainment conglomerate for $165 billion, making it one of the largest mergers in history at the time. AOL was valued at about $182 billion, Time Warner at $97 billion. The merger was a failure, AOL’s stock collapsed as the bubble burst (Nasdaq fell 78% from 2000-2002). The merged company lost $99 billion in 2002 alone.
While I believe AI will be big one day, I am cautious in the short term because I remember what happened in 2000, many promising companies went down massively but they recovered. The same thing will happen this time, the thing is, I am not sure how big the correction will be, I don’t think markets will crash because, unlike in 2000, many of the tech players today are profitable. But we will see a decent size correction and this will provide an opportunity to buy quality companies and a more reasonable price.