U.S. Stock Bubble Expert: The market's internal foundation remains solid, and a significant top is unlikely to appear within months.

Written by: White55, Mars Finance

Hayes Martin, president of the consulting firm Market Extremes and expert on U.S. stock bubble analysis, pointed out that while U.S. stock valuations may show signs of bubbling in 2026, the current market rally is still fundamentally solid. Unlike the cautious views of most market analysts, Martin has remained optimistic about the U.S. stock bull market pattern in recent years. He believes that, at least in the coming months, the current strong performance of the market will not see a fundamental reversal.

Martin stated that a short-term adjustment of 5% to 8% in the market is within the range of normal fluctuations. However, he emphasized that unless there is a severe deterioration in the internal structure of the market, or a shift in the Federal Reserve's policy stance, any pullback will attract investors to actively enter the market, driving it to reach new highs in a short period of time. The so-called “internal structure of the market” mainly includes several dimensions such as market breadth (consistency of valuations across industries, sectors, and individual stocks), volume breadth (equilibrium of trading volume across different sectors), and market momentum (sustainability of price increases). Martin specifically pointed out that several key indicators are crucial for assessing market health.

Among them, the Nasdaq weekly advance-decline line (A/D line) is one of the key indicators he focuses on. This indicator forms a cumulative curve by calculating the net difference between the number of stocks that rise and those that fall each week. When the number of rising stocks predominates, this indicator shows an upward trend. “Historical data shows that in the months leading up to the formation of tops in the vast majority of important markets, the Nasdaq weekly A/D line tends to peak in advance,” Martin explained. Currently, this indicator reached a year-and-a-half high on October 24, indicating that there will be no significant top in the market in the short term.

In addition, Martin is closely monitoring the performance of the equal-weighted versions of the main indices. If the equal-weighted index significantly lags behind the market-cap weighted index, it indicates that the market's rise relies on a few large-cap stocks, which is a sign of weak internal structure. However, the current situation is exactly the opposite, with the equal-weighted index reaching new highs in sync with small-cap and micro-cap indices.

Historically, small-cap and micro-cap stocks with relatively weak fundamentals tend to weaken first before the market ultimately peaks. Current market conditions indicate that such signals predicting a significant top have not yet emerged.

Although Martin acknowledges that U.S. stock valuations may be at extreme levels and that bubble characteristics are beginning to show, he also points out that “the rise since April of this year has been relatively orderly, without the frenzy seen at the peak of the internet bubble in 2000.” Martin concludes that if a bubble really bursts in 2026, the root cause will not be valuation issues, but the “unstable” state revealed by the internal structure of the market. He clearly states, “There is absolutely no such situation in the current market.”