US stock market faces double‑bubble risk as hedging demand rises

Analysts warn that the US equity market may be in a "double bubble," where both stock prices and profit‑growth expectations are unusually high. The S&P 500 is up about 20 % this year, and the forward P/E ratio has slipped modestly from 22.4 to 20.5, but projected earnings growth for index constituents is expected to exceed 23 % on an annual basis. Using the Shiller CAPE metric, the market is valued at roughly 41 times average ten‑year earnings—near levels seen during the dot‑com bubble. If earnings growth slows to a more typical pace, the CAPE could climb to around 67.6, implying a potential price correction of 30‑50 %.

At the same time, the US options market is showing increasing interest in protective puts and other hedges, signalling growing concern among investors about a sudden market downturn. The combination of lofty valuations, rapid AI‑driven capital spending, and heightened hedging activity suggests heightened vulnerability if profit momentum falters.