Frothy IPOs have some seeing bubbles. Investing,

It’s hard not to think equities are in a bubble after watching Shopify Inc. climb as much as 66 per cent during its trading debut on Thursday while a speculative stock such as BitGold Inc. also soars like it’s 1999 all over again.

But even if some stocks are quickly filling up with potentially dangerous hot air, it might be a while still before equity markets actually burst.

“We are on bubble alert,” said Robert Buckland, global strategist at Citigroup Global Markets, in a note to clients. “(But) it is still too early to fight this bull market. Expensive stocks may keep getting more expensive.”

Buckland believes equities are in the third phase of a bull cycle, which is when stocks keep performing well despite credit spreads starting to rise on the prospect of higher interest rates.

This “Phase 3,” which historically can last up to three years, is prone to creating bubbles, he said, but it’s usually not until the next stage that those bubbles eventually pop and stocks sell off in a new bear market.

“Chasing bubbles in Phase 3 is lucrative but potentially catastrophic in Phase 4,” he said.

For now, then, equity investors appear safe, at least until interest rates begin to rise in earnest.

Buckland said it usually takes at least three rate hikes to burst a bubble, and he does not expect the U.S. Federal Reserve to get there until the third quarter of 2016. Still, it’s worth recognizing the areas of the stock market that are most susceptible to boiling over, he said.

The Citigroup strategist believes that several forces form bubbles, including an influential “new paradigm” story, such as Japan’s economic performance following the Second World War, or a transformational technological advance like the Internet in the late 1990s.

It also requires surplus liquidity, a demand/supply imbalance and growing pressure on professional asset managers to buy red-hot stocks in order to save their careers.

“A weary client once defined a bubble to us as ‘something I get fired for not owning,’ ” Buckland said.

Based on that, the current environment looks like a good breeding ground for bubbles, but valuations, while heightened, suggest stock markets are still not inflated enough to step away from entirely.

“The S&P is still only trading at 18x earnings, well within its historically average range and nowhere near bubble territory,” said Colin Cieszynski, market strategist at CMC Markets Canada.

And for every Shopify and BitGold that is soaring in value, there are plenty of stocks doing the opposite at the moment.

“Even in the tech sector, companies that miss on earnings have seen their share prices come down like Twitter Inc. lately, but also Tesla Motors Inc. and Alibaba Group Holding Ltd. in recent months,” he said. “Back in the bubble days, people were coming up with every excuse in the world to keep driving prices higher.”

Buckland agrees there is less evidence that equity prices are becoming uniformly frothy on the basis of excessive valuations, and he continues to like even some of the global market’s hottest sectors.

“We take a balanced approach and do not discard sectors just because of expensive valuations,” he said. “We remain overweight the increasingly bubbly Health Care and Consumer Discretionary sectors. For balance, we are also overweight the distinctly unbubbly Financials.”