Market Views: forever blowing bubbles

22 September 2026

Jonathan Sparks,

UK Chief Investment Officer, HSBC Private Bank and Wealth

Every market bubble looks obvious after it bursts, but spotting one in advance can prove much harder. With the benefit of hindsight, the dotcom boom, the global financial crisis, and the speculative surge of 2020-22 all ended badly, but time shows how each was built on a different weakness. To try and identify a market bubble, I don’t rely on one simple test, but prefer to ask a more useful question - how vulnerable is the market if the story changes?

The answer matters because markets rarely fall, or bubbles burst, for just one reason. A shock can come from many areas - higher interest rates, weaker profits, tighter credit or a loss of confidence – but a key element is whether prices already assume that markets can fly high. If investors are too hopeful about company earnings, borrowing is very cheap, or risks are being ignored, even a modest disappointment can cause a sharp fall.

History shows how different the weak points can be. Before the global financial crisis, the main strain was not extreme share prices but heavy borrowing across households and companies. When borrowing costs rose and house prices fell, the damage spread through credit markets and then the wider economy. The dotcom boom was different: debt was a less fundamental issue, but technology shares were priced for near-perfect growth. In 2022, very low interest rates, pandemic support and enthusiasm for new supposed winners (overhyped, short-term pandemic obsessions) encouraged another speculative rise.

While it’s true that interest rate rises played a part in all three episodes, their impact came at very different times, so rates alone are a poor signal for when to leave the market. Given these varied signs of a bubble ready to burst, we have to monitor each one simultaneously. Much like we tend to overlook a single warning light on a car dashboard, when all are flashing, we know there is a serious problem.

Today, the clearest vulnerability is in earnings expectations, especially around large technology and artificial intelligence companies. Some are very high, yet the market has not reached the broad investor excitement seen in past bubbles. It’s also not clear how large the final market for AI services will be, how many users can be turned into paying customers, or which businesses will flourish as competition grows. Traditional markers of a bubble will continue to matter, but this new cycle may also need fresh warning signs.

The current rising tide will not lift all boats indefinitely. Rationalisation is likely, and recent consolidation of some sought after stocks is a positive technical sign, but the first listing of a pure AI-model company will be an important test of investor appetite. Not that investors should avoid shares. Although vulnerability is elevated, it’s not strong enough to justify a rush for the exit, and resilience can be built in areas where expectations look most stretched. Markets may be forever blowing bubbles, but the aim is not to call the exact moment one bursts, it is to make sure a portfolio can cope if it does.