Wall Street is talking about parabolic market growth. Is it time for investors to take their money out?

The S&P 500 index of U.S. stocks has risen for the sixth week in a row - the longest growth since 2024. Investors ignore the risks of energy crisis due to the war in Iran and focus solely on good reports on corporate sector profits, notes Goldman Sachs.

Rather worryingly, the rally is extremely uneven, Christian Muller-Glissmann, managing director of portfolio strategy at the bank, said in an interview with Bloomberg. For example, the PHLX semiconductor index is up 30% for the month and 160% for the year. Some analysts consider this growth too sharp - and are already talking about a parabola.

"Whatever you want to call it - bubble or otherwise - we're looking at a classic parabolic movement," BTIG analysts wrote in a note quoted by WSJ. Such parabolas end the same way: as sharp was the growth, as sharp will be the fall, they warned.

It is called so because the price growth graph resembles a parabola: at first the line grows smoothly, but then the curve becomes steeper and steeper. In practice, this means growth of 40-50% and higher, writes Seeking Alpha analyst Michael James McDonald. According to him, this phenomenon is extremely unusual for the market and is almost always observed during a bubble.

One sign of an overheating market - particularly in the artificial intelligence sector - is the trend toward adding the abbreviation "AI" to company names, notes Owen Lamont, portfolio manager at Acadian. This isn't the first time something like this has happened: in the late 1990s, companies added ".com" to their names, and 2021-2022, they added "crypto." In both cases, it ended with a sharp drop in stocks, Bloomberg recalls.

"Parabolic" growth has now become the most likely scenario for the technology sector, especially in the artificial intelligence segment, says MacDonald, who specializes in forecasting market trends. He is convinced that a bubble does exist now, but is skeptical of the many warnings of an imminent collapse.

"To us, all of these warnings are a clear signal that investors should stay invested and try to capitalize on the bubble, not run away from it. It's not exactly conventional advice, but after 55 years in a wide variety of markets, including the 2000 Internet bubble, I think this advice is the best," wrote McDonald, who is known as a proponent of the contrarian theory.

He believes that the time to exit the market will definitely come, but not now. "Once this bubble reaches its limit, we will recommend fixing profits," he concluded.

Investor Michael Burry, known as the prototypical "Downgrade Game" character, also thinks a scenario in which the market hits a new high and then promptly collapses is unlikely.

"A pic like this is like a unicorn: a myth until proven otherwise," Burry wrote in a discussion with his Substack subscribers in April.

Instead of an overnight crash, Burry expects a bumpy ride: he believes the market could still make new highs and experience sharp drawdowns, and the current rise in stocks could eventually look like part of the top of a bull cycle.

Many big-name investors are more cautious, though. A correction is already inevitable, billionaire Leon Cooperman, a former hedge fund manager and current head of Omega Family Office, said this spring. "Looking at what's going on in the world, I'm coming to the conclusion that the market doesn't deserve the level it's at. It's too overvalued," he said in an interview with Bloomberg.

In April, CNBC host Jim Cramer warned that chasing "parabolic" growth often turns into painful losses. "When I buy stocks on a parabola, the market usually smears me," he said.

According to Cramer, investors should balance their portfolios with "hype" and "unfashionable" stocks. "That's what they taught me at Goldman Sachs: stocks don't all go up at the same time. And my answer was always: but at least something has to grow," he said.

This article was AI-translated and verified by a human editor