US Stocks Overvalued?! How to Allocate Portfolios?
Federal Reserve Chair Jerome Powell said in a speech, “US stock valuations are quite high.” Following this remark, the three major U.S. stock indices turned down and extended their losses.
$S&P 500(.SPX)$ is indeed expensive now. Its NTM (Next Twelve Months) P/E has now reached 23.64, approaching historical highs. It’s close to last December’s level and not far from the 27x mark in 2020. With valuations at such high levels, any small disturbance could trigger a downturn.
However, some believe yesterday’s drop was merely a healthy pullback in a bull market. Against backdrop of heightened sentiment of rate cuts, Powell’s remarks acted like an emergency brake on a rapidly moving market.
Powell previous speeches mostly led to sideways movement. Nowadays, few on Wall Street pay much attention to his comments—he’s nearing the end of his term, and the next Fed Chair is expected to be a staunch Trump supporter.
With U.S. stocks having risen so much and valuations so high, how should investors allocate their portfolios?
Some suggest that this year, U.S. stock investing is about diversified allocation: super-cap tech giants + the major banks + value-stock ETFs + gold + a small portion of AI growth stocks.
The first four categories would make up over 80% of the portfolio, while AI growth stocks serve as a high-reward bet. As long as U.S. stocks don’t drop sharply, this mix should steadily increase the portfolio’s net value.
This combination can outperform the broader market. For example, using the $NASDAQ(.IXIC)$ performance this year as a benchmark, it’s up 17%.
The major investment banks delivers more gains than Nasdaq! $JPMorgan Chase(JPM)$ : +33%; $Goldman Sachs(GS)$: +42%; $Morgan Stanley(MS)$: +30%
Mag 7 remains to be stars: $NVIDIA(NVDA)$ is up 32% this year, $Alphabet(GOOG)$ 34%. If you buy the right giant in the right month, a single month could see gains exceeding 20%, easily outperforming the market.
Gold is up 43%.
Questions to discuss
Given the market’s current high levels, would you consider taking partial profits?
Do you think it is a healthy dip?
How would you plan your portfolio given high valuations?
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鮑威爾此前的講話大多導致橫盤整理。如今，華爾街很少有人關注他的言論——他的任期即將結束，預計下一任美聯儲主席將是特朗普的堅定支持者。
前四個類別將佔投資組合的80%以上，而人工智能成長型股票則是高回報的賭注。只要美股不大幅下跌，這種組合應該會穩步提高投資組合的淨值。
這種組合可以跑贏大盤。例如，使用$納斯達克
Yesterday’s pullback looked like a healthy dip, not the start of a big correction. After such a strong run on rate-cut optimism, some cooling is normal. Unless earnings or macro data weaken sharply, the broader uptrend still looks intact, supported by expected liquidity later this year.
Given these valuations, I’d stay diversified: core in super-cap tech and large banks, some gold for protection, and value ETFs for stability. I’d still keep a smaller slice in AI growth names as a high-reward bet, ensuring participation in upside while managing downside risks.
@Tiger_comments @TigerStars
I have time to wait for the next the markets to crash
Therefore I have invested in major index ETFs for US, Singapore, Hong Kong and Australia.
Take for example $SPDR Portfolio S&P 1500 Composite Stock Market ETF(SPTM)$ which covers almost the entire spectrum of the US market from Big Cap, Mid Cap and Small Cap stocks.
I have been Dollar Cost Averaging into this ETF and over time, it has rewarded me not only with dividends but capital appreciation too.
As Warren Buffett likes to say When there is Fear in the markets it is time to be greedy.
@Tiger_comments @TigerStars @Tiger_SG @CaptainTiger @TigerClub
As a lazy investor, I definitely would have a big percentage in ETFs. I do not believe in gold as its value is driven by demand and fear rather than intrinsic value. Banks might not do well if there are more rage cuts. So, I would do 70% ETF, 10% tech giants, 10% AI growth stocks and 10% on value stock ETFs. This would comprise of 90% of my total portfolio and I would keep 10% cash for dips.
Taking partial profits is a prudent move that helps reduce risk stay focused and lock in some gains。。。
A correction is likely healthy and could offer a buying opportunity if fundamentals stay strong。。。
Keeping some cash on hand provides flexibility to take advantage of market pullbacks without having to sell other assets at a loss
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@Huat99
@Snowwhite
I think the recent dip is due to profit taking, not something to be worried about
I'm thinking of bond ETFs, gold or other downstream AI companies
Mega-cap companies may have been overbought and it's feels scary to buy in at current prices