Why This Legendary Investor Says We're in a Stock Market Bubble

37 snips

Oct 19, 2025

Rob Arnott, founder of Research Affiliates and a veteran investor, dives into the unsettling reality of a potential stock market bubble. He argues that the market is currently 'priced for perfection' due to government stimulus and index fund dynamics. Arnott discusses how to navigate this frothy terrain with diversification and a cautious tilt towards value investments. He even draws parallels between today's AI hype and the past dot-com bubble, warning that inflated valuations may lead to a significant market correction.

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INSIGHT

Market Priced For Perfection

Rob Arnott says the market is in a bubble and is "priced for perfection."
He warns bubbles can last far longer and go further than you expect, so don't short them aggressively.

ADVICE

Defend By Diversifying And Tilting Value

Diversify your portfolio as the primary defensive move against frothy markets.
Arnott recommends tilting toward value and using multi-asset strategies rather than trying to time a crash.

INSIGHT

Extreme Growth‑Value Valuation Gap

The valuation spread between growth and value is at extreme levels comparable to the dot-com era.
Arnott highlights an eight-to-nine-to-one gap, implying unusually cheap value opportunities.

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In this week's episode of WSJ’s Take On the Week, co-hosts Gunjan Banerji and Telis Demos dig into the latest big bank earnings and what they signal about the health of the U.S. consumer. Next, they explore the disconnect between potential economic warning signs and the market’s speculative fever, where the “buy the dip” mentality continues to drive stocks to new records. Finally, they look ahead to the upcoming earnings from Coca-Cola, Keurig Dr Pepper, Colgate-Palmolive, Ford and GM.

Then, after the break, Rob Arnott, founder of investment firm Research Affiliates, joins Gunjan to chat about the stock market bubble. Arnott explains his case for why the market is "priced for perfection," and later, he breaks down how government stimulus and the rise of index funds are fueling the rally. And where can investors find opportunities in a frothy market? Arnott has an answer.

This is WSJ’s Take On the Week where co-hosts Gunjan Banerji, lead writer for Live Markets, and Telis Demos, Heard on the Street’s banking and money columnist, cut through the noise and dive into markets, the economy and finance—the big trades, key players and business news ahead.

Have an idea for a future guest or episode? How can we better help you take on the week? We’d love to hear from you. Email the show at takeontheweek@wsj.com.

To watch the video version of this episode, visit our WSJ Podcasts YouTube channel or the video page of WSJ.com