Is the Market in a Bubble? ITPM Insights into AI, Small Caps & Market Sentiment

Everyone's yelling 'bubble' — but what if they’re all wrong? Discover what ITPM sees beneath the noise

Are We Really in a Bubble—or Just Early in a Big Move?

You’ve probably heard it: “This is just like 1999. AI is the new dot-com bubble.” But is that actually true—or are we just watching the early innings of something much bigger?

According to the latest insights from the Institute of Trading and Portfolio Management (ITPM), the market isn't behaving the way classic bubbles do. In fact, there's growing evidence that we’re still in the early stages of a new bull cycle—fueled by tech, AI, and small-cap momentum.

Let’s unpack what’s really going on beneath the surface.

The AI Bubble Narrative: Overblown or Just Getting Started?

Everywhere you look, someone’s shouting “AI bubble!” Whether it's mainstream media, market pundits, or Twitter (sorry, X) influencers—everyone's drawing parallels to 1999. But according to ITPM, that comparison misses the mark.

Here’s why:

• The AI rally is based on actual innovation and adoption—not just hype.

• Companies like NVIDIA, Microsoft, and Amazon are generating real revenue from AI, unlike many dot-coms that had a logo, a website, and not much else.

• The market sentiment is not euphoric—in fact, it’s still pretty cautious.

  
  

This is what makes today’s market unique. The more people warn about a bubble, the more cautious investors remain. And ironically, that caution often prevents a true bubble from forming—at least in the short term.

Recent AAII Sentiment Survey shows that respondants are becoming more cautious.

Remember: Not All Bubbles Are Created Equal

The internet didn’t fail just because dot-com stocks crashed. In fact, it changed the world.

AI could be the same: even if some stocks are overvalued now, the underlying tech could transform industries over the next decade.

Cash Is Still on the Sidelines—And That Matters

Another big factor keeping the market in check? Elevated cash levels.

Despite the rally in tech and AI, there’s still a ton of money sitting in money market funds, treasuries, and other low-risk instruments. That’s not bubble behavior.

Money Market Funds show that there is over 7 trillion dollars that could be deployed into Equities.

Why does that matter?

• Cash = potential fuel for future market upside.

• High interest rates have incentivized people to park money in safe assets—but if those rates drop, that money has to go somewhere.

• Until we see a mass rotation out of cash and into equities, it’s hard to say we’re in the final innings of a bull market.

So when people say “everyone’s all in”—they’re just wrong. We're not in a full-on FOMO (Fear of Missing Out) stage yet. That means there's still room for the rally to run.

Small Caps Take the Lead: What’s Going On?

One of the most interesting market shifts that ITPM highlights is the rise of small-cap stocks.

For most of the year, the spotlight’s been on mega-cap tech—especially AI plays. But more recently, small caps have been quietly outperforming the S&P 500 and the Nasdaq.

Here’s why that’s worth paying attention to:

• Valuation spread: The gap between large-cap valuations and small-cap valuations has been the widest in over two decades.

• Policy tailwinds: Deregulation and pro-growth bills are more likely to benefit domestic-focused companies—many of which are small caps.

• Cooling inflation and potential rate cuts: Lower interest rates tend to be a massive tailwind for small companies, which often rely on credit to grow.

Small-cap stocks have historically outperformed during recessions and the early stages of economic recovery, when renewed growth and valuation resets create powerful upside momentum. In contrast, large-cap stocks generally lead in the later phases of economic expansion, supported by stability and scale advantages. The performance gap between the two can be substantial.

In short, small caps may be the next leaders of this market. And the recent breakout in the Russell 2000 index backs that up.

The Dollar Is Moving—And It Could Be a Problem

While there are plenty of bullish signs, the rising U.S. dollar has become a red flag to watch.

Here’s what ITPM suggests:

• A strong dollar hurts U.S. multinationals, as their international earnings get squeezed.

• If the dollar continues to break out, it could put pressure on stocks—especially tech giants that sell globally.

• Historically, sharp moves in the dollar often precede market pullbacks.

So while the market may still trend higher in the short term, keep an eye on the dollar. If it rips higher, it could act as a brake on this rally.

What the Crowd Gets Wrong

One of the biggest takeaways from the ITPM? Don’t blindly follow market narratives.

Here are a few common ones that just don’t line up with the data:

❌ “The market can’t go higher—we’re in a bubble.”

✅ Reality: Sentiment is still cautious. Most investors aren’t positioned aggressively long.

❌ “AI is just a fad.”

✅ Reality: AI adoption is accelerating across industries, with measurable gains in productivity and margins. -

❌ “It’s 1999 all over again.”

✅ Reality: The macro environment, earnings, and cash levels are vastly different. It’s lazy analysis.

Bottom line? Pay attention to the data, not the headlines.

AI Stocks: Real Growth or Hype Machine?

Some AI names have had explosive moves—rising 100%, 200%, even 500% in just months. That naturally raises questions:

• Is it real?

• Is it sustainable?

• And most importantly—is it investable?

From the ITPM point of view, a lot of the easy money in AI has already been made. That doesn’t mean it’s time to short it all—but it does mean selectivity matters now more than ever.

Instead of blindly chasing the biggest names, the focus should be on:

• Companies with clear revenue models

• Competitive moats

• Prudent capital allocation

• Solid financials (especially cash flow)

If a company’s burning cash with no path to profitability, tread carefully—especially at inflated valuations.

Confidence Is Good—Flexibility Is Better

The current market environment continues to show strength, with AI innovation, resilient earnings, and small-cap momentum driving positive sentiment. While some call it a bubble, the data points to a more complex, developing story.

But here’s the truth: narratives can shift quickly—and when they do, markets react fast.

That’s why it’s crucial to stay informed, open-minded, and adaptable. Let the data guide you, not the noise. Whether you’re trading full-time or managing your own portfolio, the edge lies in your ability to recognize when the story changes—and adjust accordingly.

In a market like this, confidence is valuable. But flexibility? That’s what keeps you ahead.

Want More ITPM-Level Insights?

Tired of the noise? The fear headlines? The endless bubble talk?

The ITPM approach is all about cutting through the fluff. It’s grounded in data, logic, and real-world market behavior—not hype or herd mentality. In a world of emotional trading and clickbait narratives, ITPM teaches you to zoom out, filter the chaos, and recognize the real signals.

Whether you’re trading full-time or managing your personal portfolio, the difference between success and frustration often comes down to this:👉 Are you making decisions based on facts—or fear?

If that resonates with you, I highly recommend checking out my personal journey and reviews on The Institute Trader. I break down how ITPM insights have shaped my market mindset and helped me stay ahead—while most get left behind chasing headlines.

💡 And the next time someone shouts “It’s a bubble!” ask yourself: Who gains from you being scared right now?

Disclaimer:

The information contained in this article is provided for general informational and educational purposes only and does not constitute financial, investment, or other professional advice. The content reflects the personal opinions of the author based on publicly available information at the time of writing and should not be relied upon as the basis for any investment decisions. Earnings reviews may contain forward-looking statements that are inherently uncertain and subject to change.

Readers are strongly encouraged to conduct their own research and due diligence, and to consult with a qualified financial advisor or licensed professional before making any investment or trading decisions. The author and publisher make no representations or warranties, express or implied, as to the accuracy, completeness, or reliability of the information provided and accept no liability for any loss or damage arising directly or indirectly from the use of or reliance on the information herein.