Large-cap U.S. stocks may be heading for a lost decade, this contrarian warns. What to buy instead.

By Barbara Kollmeyer

Steven Jon Kaplan says signs of a bubble are not just in tech stocks

The previous version of this story gave an incorrect date for the Beige Book’s release.

Most discussion of whether there’s a market bubble is entered around the technology sector. But investors may want to look further afield.

So says True Contrarian blog and newsletter’s chief executive Stephen Jon Kaplan, who in our call of the day, warns those bigger U.S. companies may not be worth buying for a decade.

Kaplan says the “real sign of the bubble is that there are many ordinary companies that have price-earnings and price-to-sales ratios which are several times their average historic levels.”

While Apple and Nvidia have made revolutionary tech inventions, “companies like Costco, Visa, Mastercard or Walmart are very unlikely to have similar innovations,” the contrarian-minded investor told MarketWatch in emailed comments.

Costco (COST), he notes, has grown profits 8% to 9% per year since 1983, but instead of its typical price/earnings ratio of 8 to 12 times, that gauge topped 60 times briefly in December and currently hovers around 55. Some Wall Street analysts have also flagged Costco’s valuation.

“This is a true sign of a dangerous large-cap U.S. stock bubble, since even if we get a swarm of intergalactic visitors who shop at Costco, its annualized profit growth will not come close to justifying its current price,” said Kaplan.

Costco stock saw turbulence two decades ago, when its stock lost 57%-plus from its 2000 top of $60.50 per share, to the 2002 bottom of $25.94, which gets overlooked given companies like Yahoo and Amazon lost far more in that bubble. He adds that during a Nifty Fifty selloff from 1973 to 1974, “boring” companies like McDonald’s and Coca-Cola slid alongside IBM.

Kaplan fretted about the possibility of a tech bubble last year – which didn’t materialize – but has made prescient calls, such as advice to buy stocks during the 2020 pandemic selloff and a couple of timely warnings on tech selloffs.

He says even if large-cap stocks bottom in 2027 or 2028, and a rebound ensues, he still won’t be tempted in, based stock-market bubble history.

“In 1837, 1873, 1929, 1973, 1999, and again in 2024, U.S. stocks reached extremely high valuations relative to their profit growth. Each time this was followed by a loss of more than 80% on average for the most popular large-cap U.S. shares,” he said.

And each time, the bottoms followed those peaks, and “the big U.S. stocks underperformed most other assets during the next multiyear bull market.” He notes the QQQ QQQ – the ETF that tracks the Nasdaq-100 – fell 83.6% from its intraday top seen March 2000, back to its intraday bottom seen on Oct. 10, 2002.

From there to Oct. 31, 2007 – the top of that cycle – the QQQ was still worth less than of its March 10, 2000 top, he says.

He says investors stand to gain more by putting money in assets that have gone out of favor in recent years.

He said his mid-2025 shopping plans include gold and silver mining shares via ETFs such as VanEck Gold Miners ETF GDX and VanEck Junior Gold Miners ETF GDXJ, Brazilian stocks via iShares MSCI Brazil ETF EWZ and iShares MSCI Brazil Small-Cap ETF EWZS, non-internet Chinese stocks ASHR, and small quantities of other emerging-market stocks through ETFs for Indonesia EIDO, Mexico EWW and Vietnam VNM. The timing of those purchases, he said, may depend on when investors have “given up on all of the above.”

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The markets

U.S. stock futures (ES00) (YM00) (NQ00) are higher, as Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y and the dollar DXY ease.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              5836.22    -2.33%  -3.92%  -0.77%  22.00% 
   Nasdaq Composite                                                     19,088.10  -3.91%  -5.38%  -1.15%  27.49% 
   10-year Treasury                                                     4.765      7.80    36.00   18.90   69.83 
   Gold                                                                 2683.6     1.39%   0.50%   1.68%   30.68% 
   Oil                                                                  78.44      6.82%   11.04%  9.14%   7.81% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

The first of this week’s two big inflation reports – producer prices – is due at 8:30 a.m.

Kansas City Fed Pres. Jeffrey Schmid will speak at 10 a.m., with remarks by New York Fed Pres. John Williams at 3:05 p.m.

The incoming administration of President-elect Donald Trump is considering a slow tariff ramp-up to ease negotiations and avoid inflation spikes, Bloomberg reports.

Ahead of Sunday’s possible U.S. ban on TikTok, the Chinese government may be considering a sale to Elon Musk, Bloomberg reports.

KB Home shares (KBH) rose after forecast-beating results at the Los Angeles home builder, which doesn’t expect a quick rebuild after the wildfires.

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The chart

The National Federation of Independent Business small-business optimism index in December rose to the highest level since Oct. 2018. The index gains were driven by improvements in the percentage of those expecting the economy to improve and the percentage who expect sales to increase.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   PLTR    Palantir Technologies 
   MSTR    MicroStrategy 
   TSM     Taiwan Semiconductor Manufacturing 
   AAPL    Apple 
   AMD     Advanced Micro Devices 
   RGTI    Rigetti Computing 
   QBTS    D-Wave Quantum 

Random reads

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Just your average coyote, grabbing a few things at the store.

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Last year bitcoin surged past $100K, driven by spot bitcoin ETFs and Trump’s crypto-friendly policies. Plans for a strategic bitcoin reserve and regulatory reforms mark a pivotal moment for crypto. Should bitcoin play a bigger role in your portfolio?

-Barbara Kollmeyer

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