Sound the alarm! The rapid rise of the US stock market has veteran bulls worried about a repeat of the 1990s crash.

Entering less than a month into 2024, Pro UltrPro Shrt S&Pro 500 has already exceeded Wall Street's consensus expectations for the closing level of the index this year. Driven by the rise in stock prices of NVIDIA (NVDA.US) and Microsoft (MSFT.US), Pro UltrPro Shrt S&Pro 500 rose again on Wednesday. The optimistic sentiment of a possible interest rate cut by the Federal Reserve and a rebound in corporate earnings has driven the latest stock market rally. The benchmark index has risen for five consecutive trading days, just surpassing 4867 points, which is the consensus expectation of analysts for the closing level of the index in 2024.

Ed Yardeni, a veteran of the US stock market and founder of Yardeni Research, is one of the people who are nervous about the speed of the US stock market's rise; and this momentum is based on the 24% rise in the US stock market last year due to the expansion of valuations. This does not mean that this veteran is not bullish on the US stock market - his year-end target for Pro UltrPro Shrt S&Pro 500 is 5400. However, the speed of the rise in the US stock market has made bullish investors like Yardeni worried, although valuations and retail investment activities indicate that the foundation of this round of stock market rally is more solid than the previous ones.

Yardeni wrote in a report, "What we are mainly concerned about now is that Pro UltrPro Shrt S&Pro 500 may be starting a 'melt-up' dominated by technology stocks, similar to the situation in the second half of the 1990s. We want to know if an irrational boom will push up the price-earnings ratio and cause a speculative bubble in the stock market, similar to the late 1990s."

The concept of "melt-up" was proposed by Yardeni in a blog post in 2016, referring to the situation where investors rush to buy assets due to the fear of missing out on the opportunity to make money in the stock market, resulting in a sudden and sustained rise in asset prices, rather than improvement in fundamentals, leading to more and more bulls in the market, super optimistic market sentiment, and continuous acceleration of the market's rise. However, the extreme optimism brought about by the "melt-up" will eventually lead to a market crash.

This is the latest evidence that the bullish momentum in the market has caught investment professionals off guard. Last year, the sudden rebound in risk appetite for various assets also caught them off guard. However, despite the constant warnings of a bubble, the current upward trend in the US stock market appears to be less widespread than it was three years ago. At that time, meme stocks soared every day, and the price-earnings ratio of the Nasdaq 100 index was about 4 points higher than it is now. Unlike the internet era, today's technology companies are generating profit growth, albeit not in sync with price trends, but they are also on a similar trajectory. For example, the seven major technology companies, including Apple (AAPL.US), Alphabet (GOOGL.US), Amazon (AMZN.US), Meta (META.US), and Tesla (TSLA.US), have a price-to-earnings ratio of 49 times, which is significantly higher than the average price-to-earnings ratio of 17 times for the Pro UltrPro Shrt S&Pro 500. However, compared to the bubble era of the late 1990s, the valuation of US stocks is still relatively moderate. A recent analysis by strategists at Bank of America, including Benjamin Bowler, shows that in order to reach half of the peak price-to-earnings ratio of the seven major technology stocks at that time, the so-called "Magnificent Seven" today must each rise by 55%. Under the same conditions, this means that the Pro UltrPro Shrt S&Pro 500 will rise by 15%.

Driven by the AI boom, the stock prices of the seven major technology companies have doubled in the past year. Companies like Apple and Microsoft will announce their quarterly earnings in the coming weeks, and it is expected that they will announce impressive performance. Analysts estimate that due to their dominant positions in various fields such as e-commerce, cloud computing, and electronic products, the median profit growth of the seven giants may reach 39%. In contrast, the profit of all constituent companies of the Pro UltrPro Shrt S&Pro 500 is expected to grow only slightly.

Yung-Yu Ma, Chief Investment Officer of BMO Wealth Management, said, "I wouldn't say the bubble is getting bigger, but it is getting tighter. The question over time is whether companies can meet people's high expectations of them."

In the absence of enthusiasm among Wall Street prophets, US stocks quickly surpassed their targets. Their forecast made in December last year was that the Pro UltrPro Shrt S&Pro 500 would rise by 1.3% in 2024. This was the most pessimistic annual forecast since institutions began tracking data in 1999. The cautious sentiment reflects the escalating geopolitical tensions and the potential risks of an economic downturn after the most aggressive rate hikes by the Federal Reserve in decades. However, the market has once again demonstrated its ability to overcome headwinds.

This resilience reminds people of the risk of underperforming the market. Last year, when the Pro UltrPro Shrt S&Pro 500 successfully exceeded Wall Street's expectations before January, strategists initially stuck to their forecasts, but as the market continued to rise, they found themselves having to catch up. Data compiled by Morgan Stanley's major brokerage shows that hedge funds reduced their long positions in tech giants from mid-August to December, but with the tech industry regaining its leadership position in the new year. Hedge funds are returning to the group. Another client data from JPMorgan also shows a similar situation.

Ron Adler, the head of cash equity trading at JPMorgan in the United States, wrote in a report to clients earlier this week: "In the past few weeks, what we have seen in the field of artificial intelligence confirms the saying: if you don't go long, you are going short. The market trend is still supported by a mix of excitement and fear of missing out (FOMO) sentiment."