This Friday, U.S. stocks plunged across the board, with the Nasdaq falling more than 3%—its worst performance in half a year—as the market sensed a dangerous atmosphere.
Is the bull market nearing its end? Legendary Wall Street investor Paul Tudor Jones warned in recent days that the market may still see another strong rally, but it is also entering the final stage of the bull market. He believes that gains will be realized in advance, followed by a dramatic reversal.
This pattern is the common fate of all speculative market phases and "melt-up" moments. The "melt-up" phase is usually accompanied by the most generous returns and the most intense volatility, also signaling that risks are accelerating.
The current market sentiment may have become increasingly fragile. Veteran investor Leon Cooperman, citing a warning from Warren Buffett, pointed out that when the market enters a stage where any strategy can make money, the crowd's behavior shifts from rational investing to "fear of missing out" (FOMO). In his view, the current rally has detached from fundamentals such as earnings or interest rates and is purely driven by price increases themselves.
Even more alarming, according to Bloomberg analyst Simon White, the market has entered the dangerous pattern of "bad news is good news." At this stage, weak economic data instead stimulates stock market gains, as investors bet the Federal Reserve will loosen monetary policy as a result. This abnormal phenomenon has occurred before each of the last major market tops.
The Last Hurrah? History Strikingly Similar to 1999
The current market environment bears a striking resemblance to the internet bubble of 1999. Paul Tudor Jones pointed out that the last year of a bull market often produces the most impressive returns, but is also accompanied by increased volatility.
As analyzed in an article by RealInvestmentAdvice.com, every bubble is built around a story. In 1999, the story was the internet; in 2025, the story is artificial intelligence. Both have brought enormous imagination about reshaping industries and igniting productivity.
This similarity is reflected on a psychological level. Back then, investors flooded into the market out of "fear of missing out," pushing companies like Cisco to price-to-earnings ratios over 100 times. Today, the narrative of "if AI will change everything, you can't afford not to own it" is driving the same behavior.
Although ample liquidity, massive fiscal deficits, and global central bank rate cuts continue to support the bull market, these factors are also the root causes of market instability. When almost all asset classes—from large-cap stocks to gold to bitcoin—hit all-time highs and become highly correlated, a reversal could trigger a chain reaction.
The "Buffett Indicator" Flashes Red and Narrative Risk
When the market is driven by narrative rather than fundamentals, risk quietly creeps in. Leon Cooperman warns that investors buying simply because prices are rising "has never ended well."
The "Buffett Indicator," which measures the ratio of total market capitalization to GDP, has surpassed 200%, exceeding all historical extremes and suggesting a severe disconnect between the stock market and the real economy.
The risk is that when everyone weaves a "rationalizing narrative" for the assets they hold, consensus becomes extremely crowded. As investment master Bob Farrell said: "When all experts and forecasts agree, something else is going to happen."
Currently, almost all investors expect prices to keep rising. This one-sided bet makes the market extremely sensitive to any minor negative news, which could trigger a disproportionately violent reaction.
The Dangerous Signal of "Bad News Is Good News"
According to Bloomberg's Simon White, the market entering a "bad news is good news" mode is an important sign that a top is forming. Investors turn a blind eye to economic slowdown, instead cheering in anticipation that the Federal Reserve will step in to rescue the market. Historical data shows that this mechanism has appeared before the last three major market tops, as well as before the market tops in 2011 and 2015.
However, the analysis also offers two cautions. First, this mechanism may persist for several months before the market actually corrects.
Second, in the past twenty years, this pattern has also appeared in the middle of bull markets.
But considering the current potential overinvestment in AI, record valuations, and a growing speculative bubble, no one dares to conclude that this is just a "halftime break."
