On Monday, Tesla passed General Motors in terms of market cap, making it the highest valued automaker. This article isn’t about Tesla, but Tesla serves as a red flag for how out of whack valuations have become. Tesla isn’t even the leader in electric vehicles sales which is its niche. The firm lost $675 million last year, yet the market cap is above $50 billion. When a cursory look at the leading automaker shows such unbelievable results, it’s a sign of a bubble.

The chatter on Wall Street is that now is the time to buy stocks because we’re at the end of the bull market which is when stocks rally the hardest. Morgan Stanley’s chief equity strategist believes the S&P 500 will rally almost 30% in the twelve months because of this late-cycle phenomenon. The argument boils down to saying that there’s no rational reason stocks should go up, but at the end of previous bull markets there was irrational buying. Buying based on historical precedent isn’t a terrible idea at face value. As you can see from the chart below, stocks have performed great right before their bull market peak. The problem I have with this entire premise is there’s no guarantee stocks are twelve months from their peak. If they peak in three months, you’ll lose more than you make with this advice. Claiming that you know the exact point where stocks will peak shows a dangerous level of arrogance. It’s the same arrogance which has cost the bears dearly in the past few years if they made short term negative bets on the market.

This point isn’t to criticize Morgan Stanley too harshly because it’s tough to invest in bubble times. There are a few bearish bloggers who write about Tesla who have accurately predicted its financial metrics, yet have gotten the trade wrong. Fundamentals don’t matter until they do when there’s a bubble. Both shorting and owning momentum stocks like Tesla as well as the S&P 500 index fund have become risky strategies. One final point I have is I highly doubt that if stocks rally the 25% shown in the chart above, that Morgan Stanley will go negative on stocks. It would be tough to make a proclamation that at that exact point stocks will crash.