It's not just GameStop worrying Wall Street about a bubble

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New York Stock Exchange

In this photo provided by the New York Stock Exchange, Robert Moran, left, works with fellow traders on the floor, Tuesday Feb. 2, 2021. Stocks were broadly higher in afternoon trading Tuesday, but shares of closely watched companies like GameStop and AMC Entertainment were falling sharply. (Colin Ziemer/New York Stock Exchange via AP)

NEW YORK – Now, even the pros on Wall Street are asking if the stock market has shot too high.

U.S. stocks have been on a nearly nonstop rip higher since March, up roughly 70% to record heights and causing outsiders to say the market had lost touch with the pandemic's reality. But Wall Street kept justifying the gains by pointing to massive support from the Federal Reserve, lifesaving deliverance from COVID-19 vaccines and efforts by Congress to pump more stimulus into the economy.

Recently, though, some of the market's action has become tougher to explain, and not just the maniacal moves for GameStop. Some investors are so hungry for huge payoffs that they're pouring into investments without knowing what their dollars will go toward. And by some measures, the broad stock market looks more expensive than it did before the 1929 crash.

All the fervor has Wall Street openly debating whether the market is in a dangerous bubble, after months of batting away the possibility.

A bubble is what happens when prices for something run much, much higher than they should rationally be: They've been a regular occurrence through history, going back to tulips in the 17th century and at the close of the 20th.

“It is a privilege as a market historian to experience a major stock bubble once again,” the famed value investor Jeremy Grantham, who has correctly called several major market turning points, wrote in a recent paper. “Japan in 1989, the 2000 Tech bubble, the 2008 housing and mortgage crisis, and now the current bubble – these are the four most significant and gripping investment events of my life.”

To be sure, most professional forecasters say the U.S. stock market is not headed for a crash, just slower returns than before. But those optimists are having to do more work convincing others.

“You might say a bubble occurs when people think that the market is going to go up but worry that it may drop,” said Robert Shiller, a Yale professor who won a Nobel prize for his work on explaining stock price movements. “That is where we are.”