‘Signs of a storm...’: Investment banker advises caution as markets hit dangerous valuation levels

In a thought-provoking LinkedIn post, investment banker Sarthak Ahuja has cautioned that today’s global markets are showing “three strikingly similar signs” to those seen before the Great Depression of 1929 and the Dot-Com Bubble of 2000 — both of which were followed by severe market crashes. 

Ahuja pointed to soaring stock valuations, market overconcentration, and a yield curve inversion as indicators that global equities may be entering risky territory. 

Overvalued markets 

“The Cyclically Adjusted Price to Earnings (CAPE) ratio — also known as the Shiller PE — is currently at 39, which is 23% higher than the levels seen during the biggest crashes of the past century,” Ahuja noted. “It means market valuations today are almost absurdly stretched.” 

The CAPE ratio compares a company’s market capitalisation to its inflation-adjusted earnings over the past decade. Ahuja explained that while the ratio stood above 32 in 1929 and again in 2000, its current level indicates that stocks are priced far beyond their long-term fundamentals. 

Concentration risk in AI-led rally 

Ahuja’s second red flag relates to the narrow concentration of market value in a few dominant players. “In 2000, tech firms represented 47% of the S&P 500’s value — and now, the ‘Magnificent Seven’ AI-driven companies make up 49% of the index,” he wrote. 

This, he warned, means that even a modest correction in AI valuations could trigger a broader market decline, given how heavily benchmark indices are weighted toward a handful of technology giants. 

Recession signals from yield curve 

The third sign, according to Ahuja, is the yield curve inversion — when short-term interest rates exceed long-term rates, a pattern historically seen before recessions. 

“The inversion was visible in the US from October 2022 to December 2024, and though it has now normalised, it typically predicts downturns within 12 to 18 months,” he said, adding analysts expect US markets could fall by 30-40% in the coming year, with ripple effects across global markets. 

Caution over aggression 

In light of these warning signals, Ahuja urged investors to prioritise capital preservation over aggressive returns. He suggested a diversified portfolio, with roughly 25% in bank deposits, 20% in gold, and reduced exposure to equities. 

He also noted that even Warren Buffett has raised Berkshire Hathaway’s cash holdings to a record 28–30%, nearly double what they were a year ago — a move that signals strategic caution. 

“No one can predict market movements,” Ahuja emphasised, “but signs suggest that efficient diversification and prudence may be the smarter strategy right now.” 

The post drew widespread attention on social media. “The data clearly shows how overheated the markets look right now,” wrote one user. Another commented, “The parallels with 1929 and 2000 are striking — the next 12 months may separate those who speculated from those who planned.”