“Don’t confuse brains with a bull market.” – Humphrey Neill
Stocks have picked up right where they left off in 2025, as the S&P 500 is up for the first three days of the year, and it just hit the first new high of 2026. What is interesting is that this is the first time since 2018 that stocks have gained the first three days of the year.
We are pumped that our Outlook for 2026 is set to be released tomorrow, so be sure to watch for it, but today I wanted to discuss the idea that stocks are in a bubble. We’ve been hearing this for years now, and as things go higher, I hear it more and more.
There Is No Bubble
No, we do not think stocks are in a bubble. To me, a bubble is when stock prices are rising and not justified by fundamentals. That simply isn’t the case at all now. Thanks to Sonu Vargehese, VP, Global Macro Strategist, for the upcoming charts.
Last year, the S&P 500 gained 17.9% on a total return basis, but 14.3% of that came from earnings and another 1.5% from dividends. Meaning only 2.1% came from multiple expansion. That doesn’t sound very bubbly to me.
That was last year, what about going back further? We looked back at the past six years, and the S&P 500 gained an incredible 132%. When you peel back the onion, margin expansion accounted for only 26% of the gains. Meaning the rest of the growth came from sales, margin growth, and dividends. Again, if someone tells you stocks have only gone up because of multiple expansion, you can bring this up to poke holes in their thesis.
The Dual Tailwinds To The Bull Market
Let’s keep this very simple. We continue to see new highs in earnings expectations and profit margins. In fact, both are expected to see new highs this year. We’ve talked about these two charts for going on three years now as reasons to be bullish, calling them the dual tailwinds of a bull market, and we still feel this way. If this were a bubble, I don’t think you’d see this, instead, this is a justified bull market.
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No, It Isn’t Just Seven Stocks
For years, we’ve heard that only seven stocks were going up and accounted for all the market gains, suggesting, again, that this is a bubble. Well, we’ve pushed back against this false narrative for years now, but did you know that last year the other 493 stocks in the S&P 500 accounted for more of the gains last year than the Magnificent 7 did? In the end, it was 10.4% to 7.5%. That’s right, the market gains broadened out, just as we expected.
Take another look at the chart above. What I find fascinating is that 493 have accounted for gains of more than 10% each of the past three years. So to say ‘all the gains’ have come from only seven stocks hasn’t been true for years now. Yes, the Magnificent 7 accounted for a good chunk of the gains in 2023 and 2024, but by no means did they account for all of them. Again, I don’t think this is what you’d expect to see if we were in a bubble being driven only by a few names.
Lastly, only two of the Magnificent 7 outperformed the S&P 500 last year, not exactly so magnificent if you ask me.
Thanks as always for reading and get ready to read our 2026 Outlook tomorrow when it comes out. If you are the impatient type, that’s ok, as we have you covered. In our just released Facts vs Feelings, we discussed our views for 2026. You can watch it all below!
For more content by Ryan Detrick, Chief Market Strategist click here.
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