The Danger of a Market Melt-Up

Market meltdowns have been a big worry lately, and for good reason.

- Jeff Sommer

With US President Donald Trump imposing the highest tariffs since the Great Depression and enacting myriad other disruptive policies, the threat of another market crash cannot be ignored.

Yet despite an 18.9 per cent downturn in the S&P 500 earlier in 2025, the stock market has rebounded. In fact, stocks have become expensive again. While the potential for a serious market downturn has not vanished, I think it's also time to begin thinking about another problem: the danger of a market melt-up.

While the economic impact of the tariffs has barely been felt yet, the stock market remains much higher than it was at the beginning of the year.

HOW HIGH?

One sign that the "market is a little out over its skis," as Bespoke Investment Group put it in a note to clients, is that shares of companies that are making no profit have been rising faster than those that are deeply profitable. Bespoke, an independent financial research firm, said: "For stocks that are losing money, generally speaking, the bigger the losses, the better the returns."

Companies with marvelous narratives about future returns are capturing investors' imaginations. For example, Aeva Technologies was a leading stock in the Russell 3000 index, with a gain of more than 500 per cent in 2025. It makes sensors for robots, autonomous vehicles and drones — all hot items. Yet the company is losing a ton of money.