THE US STOCK MARKET is still expensive. The valuations today exceed those of all except the most exuberant conditions in the last quarter century.

While we’ve seen what appear to be corrections in specific stocks or specific market sectors, money is generally not leaving the market yet. In a more professional parlance, the market is undergoing “rotation.” Money comes out of tech and goes into blue chips, or it flows out of blue chips, and into small caps. In less professional parlance, the money is “barhopping.”

Despite the improved labor picture from Friday– which lessens the chances of more than one or two small rate cuts this year— the market pundits provide new narratives to justify paying the higher multiples for stocks.

“Productivity is higher so we don’t need as many workers.” Or we hear that “infrastructure spending required to build out data centers for AI will drive economic activity.” Both of those have some foundation in economics. The truth is probably something less comforting.

Beginning a few weeks ago, the Fed began creating money out of thin air to the tune of 50 billion per month now. This is the game where you do the same thing, but give it a different name. The old name was QE. I forgot the new name already, but they’re creating enormous sums of money to resolve a mysterious liquidity crisis in banking. If you want to keep the stock market up and bankers and investors happy, it’s just One Battle after Another.

My biggest concern is a very simple narrative: “all major crashes of the last 50 years have been the result of excess leverage, and there are too many investors using too much leverage to buy stocks right now.”

There are at least two parts to this. One is margin debt (using share purchases as collateral for a loan to purchase additional shares. As of the end of November, margin debt levels were over 35% higher than they had been a year ago. The other component is the use of derivatives – in this case options. Option trading volume has set records throughout 2025. I remember options having a similar popularity in 2000– that was right before the tech crash.

For now, though, the market has a lot of people making a lot of money— which is a self-perpetuating situation. There exist weakness in consumer confidence and destabilizing global conditions in almost every continent on the globe, yet the market climbs the “wall of worry” as the saying goes. Okay, dance away. But you should dance near the door and leave the car running outside.

WRH