Americans have rekindled their love affair with the stock market — but like past flings, this romance comes with plenty of red flags. Retail investors are driving a historic rally that’s sent trading platforms soaring and market pros scrambling to keep up. With the S&P 500 at all-time highs, investment banks continuing to raise year-end targets, and margin debt crossing the $1T mark for the first time, the question is shifting from if we’re in a bubble to when it might burst.

Gains are the love language: The retail trading boom has created massive winners among brokerage platforms. RobinhoodHOOD

, Interactive BrokersIBKR

, and CoinbaseCOIN

have jumped nearly 515%, 130% and 70% in the past year, respectively. Newer entrants like WeBullBULL

are up over 40% since its SPAC debut, and others are also eager to join, betting that retail enthusiasm will stick around. And they aren’t the only ones who want in:

• Crypto exchange Bullish, owner of Coindesk, is seeking to go public at a nearly $5B valuation, while rival Gemini is also exploring an IPO.
• Similarly, Elon Musk’s X is planning to launch trading and investing features directly within the platform, furthering its ambitions to become a financial super app.

Another Rally, Another Regret

The current retail frenzy bears an uncomfortable resemblance to the COVID-era trading rush that ended badly in 2022. Meme stocks are pumping again — sending shares of OpendoorOPEN

, Kohl’sKSS

, and Rocket MortgageRKT

soaring. In crypto, momentum is moving beyond Bitcoin, with Ethereum up over 25% in the past week, now trading just shy of its 2021 peak. And there’s no shortage of catalysts that could drive the craze.

• FINRA is considering slashing the Pattern Day Trading Rule minimum margin requirement from $25K to $2K — making it far easier for small traders to jump in.
• The CME Group’s Fed Watch tool puts the odds of a Fed rate cut at the Sept. 17 meeting at nearly 94%.

Don’t ignore the red flags: Bank of America’s August Fund Manager Survey found 91% of money managers believe US stocks are overvalued. The top 10 companies now make up 40% of the S&P 500 — the highest concentration on record. The warning signs are there, but few are paying attention. And the longer this rally runs, the harder the eventual drop could be — a crash that might give trading apps a harsh dose of déjà vu.