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Famed investor Michael Burry recently said the stock market's heavy dependence on artificial intelligence (AI) today feels like "the last months of the 1999-2000 bubble," per CNBC (1).
And he's not alone. In early May, Paul Tudor Jones — an American billionaire hedge fund manager — told CNBC that he, too, had noticed today's AI-fueled market looks quite similar to the dot-com bubble.
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Bank of America's Michael Hartnett also agrees, but he's not just guessing wildly. He's got some compelling evidence to back up the claim.
Writing in a Bank of America research report from late May (2), Hartnett pointed to one of the most popular stock market indexes — the S&P 500 — as proof that the market is headed down an eerily similar path as the dot-com bubble from 26 years ago.
At the time he was writing the report, which isn't publicly available but excerpts are reported by CNBC, the S&P 500 had just closed at a record of 7,580.06 on May 29, a record that was surpassed only a few days later (3). Since then, the index has risen even further to another record high of 7,798.99 on Aug. 13 — marking its 27th record close of the year (4).
However, records weren't what concerned Hartnett — he was more concerned about the companies driving these new highs.
The U.S. stock market saw incredible growth in May, a month in which investors remained bullish on AI, as well as memory chipmakers like SK Hynix, Micron Technology, Samsung and Advanced Micro Devices. During that month alone, Micron Technology soared by 88%, SK Hynix by 81%, AMD by 46% and Samsung by 44%.
But it was the companies involved in AI that concerned Hartnett the most. As CNBC reports, he observed that 20 of the S&P 500's stocks managed to close at a record high on May 29 — and of those 20 companies, only seven had no direct ties to AI. He further observed that at the top of the dot-com bubble in March 2000, just 20 stocks hit new all-time highs as well.
Hartnett did admit that "speculative price action" around AI was likely to continue, but this occurrence is an eerie sign that a dot-com bubble-type crash could be on the horizon.
Even CNBC's Mad Money host Jim Cramer has raised a similar red flag. He pointed to the increasingly circular flow of money around AI companies, comparing it to the late 1990s, when telecom equipment makers helped customers finance big purchases — effectively creating demand for their own products.
"What we learned in 2000 is that you don't lend to companies who buy your goods," Cramer said, adding, "I lived through 2000. I don't want the sequel (5)."
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Stock advances 'have been extremely narrow'
Despite the market's recent success, a number of financial strategists are concerned that a failure of this bull run to extend beyond AI and tech stocks could mark its end.
"Even though the U.S. and [emerging market] equity indexes have reached new highs, their advances have been extremely narrow," states a report from BCA Research (6). "Poor breadth is often a sign of underlying stock market vulnerability."
With the market showing signs that it's on a concerning path, Hartnett said in his note that he's now advising his clients to take on a more defensive position in the coming months (2).
"Post-bubble investor roadmap since 1929 is long bonds and long combo of defensives and/or sectors which dramatically underperformed in the last months of the bubble," he wrote.
Stocks have been on a wild ride over the past couple of years. Sticky inflation, shifting interest rates and ongoing geopolitical tensions have all contributed to market swings — and now, growing concerns around stretched valuations are making investors rethink where they're putting their money.
That's where diversification comes in. Rather than relying only on stocks, bonds or cash, spreading your money across different types of assets can help protect your portfolio when one corner of the market takes a hit.
Gold has long played this role as a diversifying asset. The precious metal has historically been viewed as a safe haven because it doesn't move in lockstep with stocks or bonds. When equities stumble, investors often turn to gold as a store of value.
Opening a gold IRA with the help of Goldco allows you to invest in gold and other precious metals in physical forms while also providing the significant tax advantages of an IRA.
With a minimum purchase of $10,000, Goldco offers free shipping and access to a library of retirement resources. Plus, the company will match up to 10% of qualified purchases in free silver.
If you're curious whether this is the right investment to diversify your portfolio, you can download your free gold and silver information guide today.
Real estate can also provide an extra layer of diversification when stock markets look expensive or volatile. Unlike equities, which can swing quickly based on investor sentiment, property values often move on a different timeline.
After all, even during periods of economic uncertainty, people still need places to live.
Another advantage? Real estate can generate income. Rental properties can provide a steady stream of cash flow, creating a passive source of income when your stock portfolios are under pressure. And these days, you don't necessarily need to buy a second home or deal with tenants to invest in real estate.
Mogul, for instance, is a real estate investment platform that lets you invest in shares of single-family rental homes nationwide.
Founded by former Goldman Sachs real estate investors, mogul handpicks the top 1% of single-family rental homes nationwide for you. This way, you can invest in institutional-quality offerings for a fraction of the usual cost — while receiving monthly rental income, real-time appreciation and tax benefits.
The team at mogul carefully vets each property, requiring a minimum 12% return even in downside scenarios. Across the board, the platform features an average yearly return of 18.8%. Their cash-on-cash yields, meanwhile, average between 10% to 12% annually. With investments typically ranging between $15,000 and $40,000 per property, offerings often sell out in under three hours.
Getting started is a quick and easy process. You can sign up for an account and then browse available properties. Once you verify your information with their team, you can invest like a mogul in just a few clicks.
Those with more capital on hand can diversify their real estate portfolio even further.
One way of doing it is by leveraging multifamily real estate investing. In fact, in a report prepared by JPMorgan Chase, Al Brooks — the firm's vice chair of Commercial Banking — said, "I think multifamily housing is absolutely where you want to be as an investor (7)."
Accredited investors can now tap into this opportunity through platforms such as Lightstone DIRECT, which gives accredited investors access to single-asset multifamily and industrial deals.
Lightstone DIRECT's direct-to-investor model ensures a high degree of alignment between individual investors and a vertically-integrated, institutional owner-operator — a sophisticated and streamlined option for individual investors looking to diversify into private-market real estate.
With Lightstone DIRECT, accredited individuals can access the same multifamily and industrial assets Lightstone pursues with its own capital, with minimum investments starting at $100,000.
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CNBC (1), (2), (5); AP News (3); The Wall Street Journal (4); BCA Research (6); JPMorgan Chase (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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