Top economics professor warns U.S. stock market is ‘slowly walking into a deflating bubble’

Finance

Top economics professor warns U.S. stock market is ‘slowly walking into a deflating bubble’

American economist and professor of Applied Economics Steve Hanke has warned about the state of the U.S. stock market, describing it as a bubble gradually deflating under the weight of overvaluation and investor complacency.

Hanke cautioned that U.S. equities have become “overhyped, overpriced, and overvalued,” suggesting that the current market euphoria overlooks mounting economic uncertainties and structural risks, according to an interview with David Lin published on October 17.

He noted that the markets behavior reflects a slow march toward correction. While it remains unclear whether the eventual adjustment will come as a sudden crash or a drawn-out decline,

Hanke emphasized that an unwinding is inevitable as valuations return to more realistic levels.

The economist observed that investors appear to be disregarding potential headwinds, including geopolitical tensions, rising debt levels, and slowing economic growth, factors that could trigger a repricing of risk across markets.

“The market is overhyped, overpriced, overvalued. There is definitely a bubble in the equity market in the United States. Everyone is just ignoring all of the uncertainty, all of these potential problems. The equity market just keeps slowly walking into a deflating bubble. Now, whether that bubble pops or whether the air comes out slowly is another issue. I dont know,” Hanke said.

Unavoidable correction

Hanke concluded that, although the timing and nature of the adjustment remain uncertain, the U.S. stock markets inflated valuations make a correction unavoidable, warning that investors should brace for a “deflating bubble” rather than expect the rally to continue indefinitely.

His warning about the bubble aligns with his long-standing track record. He has consistently sounded the alarm on overvalued markets, often pointing to inflationary risks, fiscal mismanagement, and misguided monetary policy.

Notably, Hanke was one of the first to predict the 2008 financial crisis, and he has continued to issue cautionary messages about the U.S. economys vulnerability to excessive debt and speculative behavior.

Most recently, he warned that the ongoing trade tariff initiative launched by President Donald Trump could trigger a recession.