Wall Street has been on quite a ride since April, with the S&P 500 up more than 25% and the Nasdaq surging over 33%. Stocks continue to price in growth, resilience, and innovation, even as the underlying economy quietly drifts toward fatigue. Things were getting a little too easy.
Strong earnings deserve credit but the rally has stretched valuations to levels that are literally keeping some of my partners awake at night. Momentum has done much of the heavy lifting, yet momentum is a fair-weather friend.
Momentum, after all, is a measure of investor appetite for risk assets. It may be fading at the edges but I still see buyers stepping in on quick, sharp sell-offs, a reminder that sentiment remains constructive, even if not as euphoric as a couple of months ago. Well, there is a pool of liquidity that has nowhere else to go.
I’m not bearish, far from it. I would simply be more comfortable if Wall Street pauses to catch its breath. Higher volatility is already knocking. September’s turbulence may have less to do with the month itself and more with the market finally catching up to rising risks.
This is no time for aggressive buying. I have been trimming positions to protect gains for a number of model portfolios. Yeah, call me a perma bull or whatever you want. I say I just know a good long-term story when I see one. Volatility may rattle a few nerves but to me, it is simply the market taking a deep breath before the next run.
