To The Moon

Here’s my take — these are nuanced issues, so I’ll lay out what I see as the balance of probabilities (not certainties). You should treat this more as a strategic counsel than a prediction.

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1. Is this a “healthy pullback”?

I lean yes, it can be viewed as a healthy correction, though not without risks.

Arguments supporting a healthy pullback:

The U.S. indices had rallied sharply following the September Fed meeting, so some reversion was overdue.

The downturn is relatively modest — losses over three days are not unusual in extended bull runs (and indeed, analysts have flagged that three-day declines following records happen with some regularity). 

It may help shake out weaker hands, reducing froth and restoring some balance (liquidity, valuations, risk premiums) before the next leg of the market.

Caveats / risks that make this more than just a routine pullback:

The trigger seems structurally significant: strong economic data (strong GDP revision, low unemployment claims) is putting pressure on expectations for follow-on rate cuts. 

Technology / growth stocks, which have been leading the rally, appear vulnerable to rising long yields and more hawkish Fed expectations. 

If the pullback becomes persistent (5–10% or more), sentiment could worsen, compounding downside via flows and positioning.

So my working view: this is more likely a healthy, consolidative pullback than the start of a crash — but it has the potential to morph into something more serious if macro data surprises, rate path expectations get derailed, or sentiment sours further.

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2. Do I agree with Powell that U.S. equities are overvalued?

Powell’s caution is not unreasonable — I think there is merit to saying equities are stretched, though “overvalued” is always a relative / conditional statement.

Supporting the overvaluation view:

With interest rates higher (especially long-term yields) and a less certain cut path, the discount rate for equities is under upward pressure, making high multiples harder to justify.

Much of the gains in recent years have been in high-growth, technology-heavy names, whose valuations already incorporate (or over-incorporate) optimistic growth and margin expansion.

If the Fed is more constrained in how much easing it can provide going forward, that removes a tailwind for risk assets.

Counterpoints / moderating views:

Strong earnings growth or productivity gains (e.g., from AI, digital transformation) could justify premium valuations in certain segments.

Some defensive, cyclical, or undervalued pockets may still look “cheap” relative to their growth or yield profiles.

Valuation metrics (PE, EV/EBITDA) have limitations — the relevant benchmark may be forward-looking cash flows, structural growth, etc.

So I don’t take Powell’s remark as absolute — rather, a prudent warning that the market is less “free lunch” than it was in more accommodative times. I lean toward the view that equities overall are at or near lofty valuation levels, especially in the growth/tech spaces, though not uniformly so.

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3. Can upcoming earnings justify the current lofty valuations?

Yes — they can, but it’s not guaranteed. It depends heavily on execution, forward guidance, and macro assumptions.

What would strengthen justification:

If corporate earnings surprise to the upside, particularly from high-margin sectors (AI infrastructure, software, semiconductors, cloud), and if those beats come with confident forward guidance.

If margins can expand despite cost pressures (e.g., with operating leverage, automation, productivity gains).

If companies can deliver on structural themes (digital transformation, clean energy, AI, autonomous systems) in a convincingly scalable way.

If balance sheets remain strong (low leverage, good cash flows) and free cash flow growth is robust.

Risks to that justification:

If guidance is cautious or downgraded due to macro, capital costs, or supply-chain headwinds.

If earnings disappoint due to margin contraction, higher interest cost, or inventory issues.

If macro or geopolitical headwinds bite (trade, regulation, inflation, Fed policy shifts).

In short: yes, some earnings may support valuations — but the bar is higher now, and surprises will need to be strong, broad, and sustained to support multiples as high as they currently stand.

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4. Would I take profits or fully hedge, or somewhere in between?

My preference is a balanced approach — take some profits and light hedging, rather than an extreme swing. Here’s my suggested playbook:

Partial profit-taking:

Identify names or sectors that have had outsized gains (especially speculative or richly valued names) and lighten exposure gradually.

Lock in gains in positions that no longer have high conviction or where upside is more limited.

Reallocate some proceeds to more defensive assets, cash, or assets with asymmetric upside (e.g., optionality plays, undervalued cyclicals, quality dividend names).

Selective hedging:

Use protective puts or collars on your more aggressive / high-volatility holdings rather than hedging the entire portfolio.

Consider tail-risk hedges (e.g. out-of-the-money options) to guard against sharp downside.

Use strategies like pair trades (long quality / short more speculative) to neutralize market beta where appropriate.

Why not hedge everything or exit fully:

The central scenario is still for equities to push higher (if Fed cuts materialize, earnings hold up, sentiment stays positive). Exiting fully would risk missing out.

Full hedging is costly (premiums eat returns) and can backfire if the market rebounds strongly.

Timing the market is notoriously difficult; a measured, tactical approach typically balances risk and opportunity better.

Thus my tactical posture would be: partial de-risking + smart hedges, while retaining meaningful exposure to upside in the event the market regains strength.

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Summary

This looks more like a healthy pullback than a collapse, though the risks are nontrivial.

Powell’s view that equities are overvalued has merit, particularly in growth/tech sectors, though it’s not absolute.

Upcoming earnings could validate valuations if results are strong and guidance is confident, but the bar is high.

A balanced approach — taking profits selectively and using hedges — is preferable to extremes.