Is a bubble forming around the stock market (^DJI, ^IXIC, ^GSPC)? And if so, is it about to burst?

B. Riley Wealth Management Chief Investment Strategist Paul Dietrich sits down with Yahoo Finance to discuss whether certain sectors of the market are becoming overvalued and if the equity market is edging closer to correction territory.

"I'm sure that every analyst... is looking at all the different valuation methodologies, and they've got to come to the same conclusion because there's no ambiguity here," Dietrich says about the probability of a market bubble. "It is bizarrely overvalued in most of these things. And so, you're seeing the smart money right now moving massive amounts into cash."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: The S&P 500, as well as many of the major averages, really moving to the upside this year. The S&P up more than 7%, a lot of this rally driven by just a handful of tech stocks, very similar to the story that we were talking about last year. So is the market nearing bubble territory? And how should you position yourself ahead of that?

We want to bring in Paul Dietrich. He is the chief investment strategist with B. Riley Wealth. Paul, it's good to see you here. You lay it out pretty straightforward in your most recent note. You say that people need to be aware of the fact that we are near the bubble. So the stock market bubble is about to burst, is exactly how you put it. So we've seen this dramatic run-up in stocks right now. When you say it's about to burst, what's that going to look like? What should investors be doing today?

PAUL DIETRICH: Well, I was managing money back during the dot-com bubble. And I can tell you that the stock market can go up. You know, even though there are no fundamentals, it's all momentum for a long period of time. But when it does burst, it usually bursts quickly. And so that's what we're looking at.

I've analyzed the stock market from just about every traditional analysis that you can do to determine whether it's overvalued or undervalued. And every single indicator seems to tell us that we're in a historic bubble. But how long it can go, that's a good question because it certainly went on longer than I expected back in 2000, 2001.

And you look at things like price earnings ratio. I mean, we haven't seen a gap between the PE for the S&P 500 and the price of the S&P 500 since the internet bubble back in 2000. And then you look at something like the 200-day moving average, and there's a 13% gap, which is historic. That's what the S&P 500 would have to go back to. It would have to drop 13% from right now to get back to its 200-day moving average.

You look at other indicators, and they're all the same. We're literally in historic territory. And it's hard to look at that and say that we're not going to see a major, major correction coming. Now is not the time to be putting new money into the market.

BRAD SMITH: Hmm. Paul, so when things feel bubbly like this, number one, what is the biggest indicator that you've looked that's sent off flashing lights and signals? And does that essentially initiate a mindset for a lot of shorts to enter into this picture too?

PAUL DIETRICH: Well, I'm sure that every analyst and chartered financial analyst is looking at all the different valuation methodologies. And they've got to come to the same conclusion because there's just no ambiguity here. It is bizarrely overvalued in most of these things. And so you're seeing the smart money right now moving massive amounts into cash.

I mean, we saw Jeff Bezos sell $8 billion worth of Amazon. Zuckerberg last week sold a billion dollars of Meta. It's not that they don't believe in their companies. They do. They know that it's just completely overvalued. And if they sell it now, they can buy it back cheaper later.

And so the Walmart family just sold, I believe, $4.5 billion in Walmart stock. Warren Buffett has sold his stocks of the companies that he doesn't wholly own, a lot of them, and he's created $158-billion cash hoard so that he can use that. So we're also looking at corporate cash, and it's historically at its highest level ever. So this is why, you know, you ought to-- maybe they something that we don't know as average people.