‘Signs of a storm…’: Investment banker advises caution as markets hit dangerous valuation levels  

In a thought-provoking post on LinkedIn, investment banker Sarthak Ahuja warned that global markets today are showing “three strikingly similar signs” to those seen before the Great Depression of 1929 and the dot-com bubble of 2000 — both of which were followed by severe market crashes.

Ahuja pointed to rising equity valuations, excessive market concentration, and yield curve inversion as indicators that global stocks may be entering risky territory.

Overvalued markets

“The cyclically adjusted price-to-earnings (CAPE) ratio – also known as the Shiler PE – currently stands at 39, which is 23% higher than levels seen during the biggest crashes of the last century,” Ahuja noted. “This means that today’s market valuations are almost absurdly overvalued.”

The CAPE ratio compares a company’s market value to its inflation-adjusted earnings over the past decade. Ahuja explained that while the ratio was above 32 in 1929 and again in 2000, its current level indicates that stock prices are well beyond their long-term fundamentals.

The danger of concentration in the path led by artificial intelligence

The second red flag for Ahuja relates to the narrow concentration of market capitalization among a few dominant players. “In 2000, technology companies represented 47% of the value of the S&P 500 — now the seven great AI-driven companies make up 49% of the index,” he wrote.

He warned that this means that even a modest correction in AI valuations could lead to a broader market decline, given how heavily benchmark indicators are weighted in favor of a handful of tech giants.

Recession signals from the yield curve

The third sign, according to Ahuja, is a yield curve inversion — when short-term interest rates exceed long-term interest rates, a pattern historically seen before recessions.

“The reversal was evident in the US from October 2022 to December 2024, and although it has returned to normal now, deflationary cycles are typically expected within 12 to 18 months,” he said, adding that analysts expect US markets to decline by 30-40% next year, with ripple effects across global markets.

Beware of aggression

In light of these warning signs, Ahuja urged investors to prioritize capital preservation over strong returns. He suggested diversifying the investment portfolio, with approximately 25% in bank deposits, 20% in gold, and reducing exposure to stocks.

He also noted that even Warren Buffett raised Berkshire Hathaway’s cash holdings to a record 28-30%, nearly double what they were a year ago — a move that signals strategic caution.

“No one can predict market movements, but evidence suggests that active and prudent diversification may be the smartest strategy right now,” Ahuja stressed.

The post received widespread attention on social media. “The data clearly shows how overheated the markets look right now,” one user wrote. Another commented: “The similarities to 1929 and 2000 are striking – the next 12 months may separate those who predicted from those who planned.”