This is the Dumbest Stock Market in History: AI Bubble, Passive Investing Dominance Spark Fears of Dot-Com Repeat Amid Soaring S&P 500 Valuations
Picture this: trillions poured into AI dreams, stocks soaring on hype alone, while fundamentals scream warning—could history’s wildest bubble be bursting soon? A provocative new report calls today’s market the dumbest stock market in history, igniting fierce debate among investors.
Dumbest stock market, AI bubble, passive investing, S&P 500 valuations, stock market crash—these trending terms capture the frenzy as St. James Investment Company’s Q3 2025 Adviser Letter slams the current landscape. Authored by the value-focused firm, the letter draws parallels to 17th-century England’s speculative boom, where “projectors” peddled absurd inventions like training hogs to plow fields, fueled by public gullibility. Fast-forward to 2025, and AI hype mirrors this, with investors chasing unproven tech amid $338 trillion in global debt—five times higher than during the 2000 dot-com peak.
Background traces back to the efficient market hypothesis and passive investing’s rise since Jack Bogle’s 1976 Vanguard 500 launch. Today, passive assets surpass active ones, with $2 trillion in ETF inflows last year alone, while active funds bled $450 billion. This mechanical buying ignores fundamentals, inflating prices based on momentum and creating fragility. The letter highlights how passive dominance reduces diversification, boosts stock co-movement, and weakens price discovery, making markets vulnerable to shocks—like the 4.9% S&P 500 drop after President Trump’s April 2025 “Liberation Day” speech.
Key facts underscore the absurdity: The S&P 500 trades at 31 times earnings, double the historical average of 16, implying dismal future returns against investors’ 10.7% real expectations. Six tech giants—NVIDIA, Microsoft, Apple, Alphabet, Amazon, Meta—hold over a third of the index’s $19 trillion value, up $11.8 trillion on AI euphoria since ChatGPT’s 2022 debut. NVIDIA alone, at $4.5 trillion, represents 8% of the S&P, relying on outsourced chips from TSMC and ASML. Yet, a July 2025 MIT report found 95% of 300 AI projects yielded zero ROI, citing learning barriers over infrastructure.
Comparisons to the dot-com bubble are stark: Back then, market cap was $44 trillion globally; now it’s $132 trillion, with U.S. stocks at $66.7 trillion but half the public companies. Passive flows exacerbate concentration, much like tech overweighting in 2000 led to devastation on burst. The letter warns of a capital cycle trap: $3-5.2 trillion in projected data center investments by 2028-2030 demand unrealistic revenues—$2.5 trillion at 20% margins just to break even, equaling 10% of U.S. GDP.
Expert opinions amplify the critique. Howard Marks of Oaktree Capital notes investors’ natural optimism blinds them to risks, rewarding “buy the dip” since 2009’s bear market ended. Analyst Doomberg highlights U.S. AI edge over China could erode, as seen in solar and EVs. St. James stresses value investing’s edge, quoting Michael Porter: Strategy is choosing what not to do.
Public reactions exploded after MarketWatch’s October 10, 2025, opinion piece amplified the letter. On X, @MarketWatch’s post garnered 11 likes and 11 replies in hours, with users like @kirubatweets sharing the link. One commenter called it “spot on,” while skeptics dismissed it as fearmongering. Reddit threads on r/investing echoed concerns, with users debating AI’s real vs. hyped value, some citing historical crashes like Black Monday 1987’s 22.61% drop. Broader sentiment on platforms like YouTube shows videos reacting to “craziest market levels,” blending alarm and dismissal.
For U.S. readers, this hits home economically: Overvalued stocks threaten 401(k)s and retirements, with passive funds amplifying losses in downturns. Lifestyle impacts include eroded confidence in tech-driven prosperity, pushing savers toward safer assets amid rising debt. Politically, it fuels debates on regulation, as passive dominance crowds out active oversight, potentially worsening inequality. Technologically, AI’s promise clashes with reality, risking innovation setbacks if the bubble pops, affecting jobs in Silicon Valley and beyond.
The letter advises stress-testing portfolios now, favoring fundamentals over hype to navigate this dumbest stock market era.
In summarizing, the report paints a cautionary tale: Blind speculation on AI and passive flows risks a historic reckoning, urging investors to prioritize value and patience for long-term survival.
By Sam Michael
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