Following with the U.S. stock market skyrocketed to all time highs in 2023. The S&P 500 has set 20 all-time highs just this year so far. As a result, in August the Dow Jones Industrial Average reached its first record high since December 2022. This milestone serves as a cynical reminder of the seemingly unstoppable strength of U.S. equities. Nevertheless, market analysts caution that these sky-high valuations are risk outliers, not the norm, as shown by past history and present day signals.
September has a notorious reputation for being a tough month for the S&P 500. The index has actually gone down in six of the past ten years. Fifth, all analysts are focused on whether this will be the year that market forces put a stop to the climb. On Tuesday, the rest of the S&P 500 sagged 1.5%, and the Nasdaq Composite tumbled 1.91%. Take yesterday, for instance, when the so-called Magnificent Seven—Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla—were all red. This plunge only stoked general market jitters.
As of last week, these seven companies alone accounted for an astonishing 33.5% of the S&P 500’s total market value. This concentration prompts serious questions about how sustainable their performance is long run. So, with inflation concerns still lingering, and bond yields increasing, which could pull investment from riskier assets such as stocks.
On the surface, the US market is pricey. There are no two ways about it. This is what investors want to do right now,” noted Arun Sai. Analysts continue to reinforce belief in overvaluation. By both measures they argue that U.S. equities are much more overpriced than equities in other countries.
Incredibly, despite these concerns the S&P 500 has continued to rocket upwards for almost 30% since its bottom in April. Other analysts are beginning to argue that investor expectations are excessively optimistic. Jay Hatfield commented on this phenomenon: “There was a huge rally, so therefore expectations are, by definition, very high.” He cautioned that companies must exceed these expectations to maintain their stock prices: “If you don’t substantially beat expectations, you’re going to roll over.”
The increase in volatility is not at all subtle. On that same Tuesday, the CBOE Volatility Index jumped by 19%—a surefire sign that fear has crept back onto Wall Street. Investors are piling into safe-haven assets including gold, which climbed to a record high above $1,900 per ounce early Tuesday. The yellow metal, as some call it, has soared close to 35% thus far this year. With such uncertain economic prospects, central banks are on a gold-bullion buying spree.
Whereas some experts are warning of a coming crash due to today’s high — or historically high — valuations, others contend that today’s valuations are warranted. James Reilly stated, “While it may appear that investors are paying a premium for US stocks, they may just be paying for superior long-run growth.” He acknowledged that “by most widely used measures, US equities look highly valued relative to the rest of the world.”