Shilling: 'Fads' Fueling Market, Even as Growth Slows

U.S. stocks are being supported by speculation, as equities linked to artificial intelligence and other “fads,” including Nvidia, support the market amid sliding economic growth, according to A. Gary Shilling.

Among Shilling’s five investment themes, the investment advisor and economist continues to recommend investors “avoid vastly overpriced speculative stocks such as the Magnificent Seven, AI, SPACs, Nvidia and crypto securities.”

Nvidia and the other high-powered Magnificent Seven growth stocks have risen 20.2% this year, Shilling noted. The S&P 500 is up more than 9% year to date, but only 7% without these seven stocks, he said.

“With the Nvidia craze, investors are saying that the rest of stocks and the economy are trash. But recall the rise and fall of EVs, green energy, ESG and social investing and other recent fads,” Shilling said in his June “Insight” newsletter, released Friday.

Fads in financial markets “are still rampant,” Shilling said.

“Some will continue to disappear without a trace, except for huge losses by gullible, overenthusiastic investors. Others will probably survive after excruciating industry consolidation and losses,” Shilling wrote. 

“It’s clear that the bloom is off the rose for electric vehicles, green energy, ESG investments, social investing, stay-at-home spending and the Everything Rally. Only AI and the Magnificent Seven are still standing.”