The 'smart money' isn't acting like we're in a bubble, top economist says. AI is in 'early innings'

Core Viewpoint - The U.S. stock market is not currently in an AI bubble, despite high valuations and significant AI capital expenditures, as the "smart money" has not exited the market, which is a key indicator of a financial mania [1][2]. Group 1: Market Conditions - The S&P 500 has recently breached 7,000 for the first time, indicating a frothy market environment [1]. - High valuations and retail investor enthusiasm are present, but the absence of equity issuance disqualifies the current market cycle from being classified as a bubble [5]. - U.S. firms have engaged in approximately $1 trillion worth of stock buybacks over the past year, contrasting with the issuance seen during previous bubbles [4]. Group 2: Bubble Detection Framework - Lamont's framework for detecting bubbles includes four key indicators: overvaluation, bubble beliefs, issuance, and inflows [5]. - While three of these indicators are present in early 2026, the lack of new equity issuance is a critical factor that suggests the market is not in a bubble [5]. - Historical comparisons show that the current market's conditions, while expensive, do not reach the extremes seen during the dotcom bubble [6]. Group 3: Future IPO Activity - There is speculation that a significant wave of IPOs may occur in 2026, particularly if high-profile companies like SpaceX decide to go public [17]. - Blackstone is preparing for a major year of IPOs in 2026, indicating a potential "mega-cycle" in the IPO market [18]. - Goldman Sachs predicts unprecedented deal volume and sizes in the upcoming IPO cycle, distinguishing it from previous periods of high IPO activity [18].