Are We On The Edge Of A Bubble… Or Just Before The Next Big Boom?

A Tale Of Two Economies

As summer winds down and cooler weather sets in, I’ve been reflecting on conversations with colleagues, clients, and friends.

One theme stands out: People are very divided on the economy and the stock market.

You’ve probably noticed this too. A quick scroll through financial headlines or online forums shows the split. Some argue the U.S. economy is poised to accelerate, with the potential for lower taxes, falling interest rates, AI-driven innovation, and pro-business policies. Others worry that the bottom is about to fall out, bringing falling stock prices, declining home values, and rising unemployment.

 

So, who’s right? This month, we’re looking at the state of the economy through the lens of leading, coincident, and lagging indicators, and then turning to history to see how investors fared in similar “bubble vs. boom” moments.

 

Understanding Economic Indicators

 

With so much data available, it helps to organize indicators into three buckets:

 

• Leading indicators hint at where the economy is heading.
• Coincident indicators show where it stands today.
• Lagging indicators confirm where it has been.

 

To give you an idea, here’s a few of the key metrics that we follow, what they mean, and how they look:

 

Leading Indicators

 

The stock market itself is a leading indicator and is still near all-time highs, suggesting optimism for future growth. This has come with some significant tests and opportunities to sell off, with a -25% decline as recently as this past April, suggesting resiliency in valuations.

The yield curve gives us an idea of bond market expectations for future growth.  In a healthy economy, longer-term bonds pay better interest rates than shorter-term bonds.  When this relationship flips it is known as an “inverted yield curve”, which is believed to signal an impending recession.  This happened most recently in 2022, but the yield curve has since gotten back to “normal” as of last year.

 

 

 

 

Money Supply (M2): After the largest increase to money supply in modern history, the growth rate of the money supply has stabilized.  In the past, recessions (indicated by the gray bars) tend to coincide with a reduction in the growth rate of the money supply.

 

 

 

 

 

 

Building Permits have been slowing since the height of Covid but are still in line with long term averages and materially higher than in previous periods of stress. With higher interest rates, it is more expensive for builders to construct new homes.  We expect that as interest rates decline, it is likely that we will see increased permits for new construction.

 

 

 

 

 

Coincident Indicators

 

• GDP surprised to the upside in the most recent quarter, suggesting stronger economic growth than was previously expected.
• Personal incomes in the US have been rising faster than inflation now since the beginning of 2023 and continue to grow faster than inflation, helping increase purchasing power and allowing continued economic growth on average.
• Retail Sales continue to grow along with wages, showing a roughly +3.7% increase from July 2024 to July 2025

 

Lagging Indicators

 

• The unemployment Rate has increased modestly since last year from 4.1% in July 2024 to 4.2% in July 2025.  This signals that the economy is still at “full employment”, raising questions about how we might fill additional needed jobs with lower rates of immigration.
• Inflation, as measured by the CPI is still running at 2.7% year over year as of July, down sharply from 9% peak in 2022, but still above the federal reserve’s 2% long term target, making it hard for the Fed to proactively drop rates while inflation is still warm.
• Corporate Profits came in better than expected in Q2, with roughly 80% of the actual earnings coming in ahead of the estimates for the quarter, causing upward revisions to earnings and price targets.

 

These mixed signals are exactly why it’s hard to feel confident about what comes next. Some investors are convinced we’re in bubble territory, while others believe we’re just at the start of another long run of growth.

 

To put that debate into perspective, let’s look at a couple of real-world scenarios as if you had invested at various points before the .com bubble:

 

 

 

 

 

If you invested $10,000 in the S&P 500 at the start of 1997, you were putting money to work just three years before the dot-com bubble burst. Even with the painful crash that followed, by the end of 2002 your account would still be worth more than you invested. Timing the bubble perfectly was nearly impossible, and those who stayed invested came out ahead.

 

 

 

 

 

 

 

On the flip side, if you had invested $10,000 at the start of 1992, you would have caught the beginning of a powerful economic expansion. By the end of 1999, that investment grew to more than $35,000. Along the way, there was plenty of uncertainty—deficit fears, currency crises, and political gridlock—but remaining invested captured the full benefit of the boom. Even after the bubble burst years later, you still had more than 2x your initial investment.

The lesson is simple: whether we’re heading into a bubble or a boom, the real risk is sitting out. No one knows which scenario plays out in the short term, but history shows that being invested with a disciplined plan has rewarded investors through both fear and opportunity.

 

As always, if you’ve been holding cash on the sidelines or are second-guessing your portfolio, let’s connect. We’ll make sure your plan is positioned for both the risks we face today and the opportunities that come after.

 

 

 

 

Thanks For Reading! We Hope To See You Again!

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Advisory services offered through National Wealth Management Group, LLC, a Registered Investment Adviser. This information is intended for educational purposes and is not intended as a recommendation to buy or sell securities. Investing involves risk. Before investing, you should consult with a financial advisor to determine how a specific investment strategy fits your personal goals and objectives.