3 big risks to the stock market's record high
But strategists warn this stock market rally is not risk-free.
Why it matters: Institutional investors are scarred from missing out on the April snapback, which could be priming them for a bias toward optimism that misses three big potential risks.
Between the lines: Strategists are cautious about these issues.
Economic weakness: Inflation could worsen as tariffs hit the data, or the labor market could worsen.
Dollar declines: Ongoing dollar weakness could drive further inflation and fuel a rotation away from dollar-denominated assets, including stocks.
Valuation bubbles: With stocks trading at 22 times earnings, above historic levels, are we priced to perfection?
The intrigue: The list doesn't mention tariffs since investors don't really view tariffs as an earnings headwind anymore, as we reported.
Zoom in: The risks are slowly trickling into the economic data, and frothiness is showing up in technical market indicators.
Continuing jobless claims continue rising, and recurring applications for unemployment benefits are at the highest level since 2021, a sign that it is taking jobless Americans longer to find a new job.
Layoff rates remain low, but so is hiring. As of April, the hiring rate was consistent with that seen in the 2010s when the unemployment rate was over 6%.
Consumer spending fell in May for the second time in 2025. If the shopping retreat continues, it could weigh on corporate earnings.
The Bloomberg fear and greed index hit the highest level of greed since March of 2024 after stocks notched the record last Friday.
Muted market participation is indicated by the ratio of the equal-weighted S&P 500 to the cap-weighted index hitting its July 2024 low.
What they're saying: Joe Brusuelas, principal and chief economist at RSM US, says equity valuations are not sustainable.
He is concerned about investors pricing in over a 90% chance of rate cuts by September given inflation risks and currency exchange rates.
Believing in rate cuts that soon is "a little bit like going to see that cool F1 movie…It's gonna require the suspension of disbelief to truly enjoy it," he says.
Yes, but: It has not paid off to bet against market strength this year, with the S&P 500 up 5.4% year to date.
What we're watching: Look at market leadership for clarification on how healthy the current rally is.
While large-cap tech drives gains thanks to its weight in the S&P 500, it is the fifth-best performing sector this year, a potential sign of broadening market strength.
The bottom line: If the volatility of the first half of the year got you seasick, diversify your portfolio.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
5 minutes ago
- Yahoo
Baker Hughes Earnings Preview: What to Expect
Valued at a market cap of $38 billion, Baker Hughes Company (BKR) is a global energy technology leader that provides a portfolio of technologies and services to the energy and industrial value chain. The Houston, Texas-based company offers drilling equipment, subsea systems, and well construction products and services. It also provides industrial solutions such as gas turbines, compressors, condition monitoring, and technologies for carbon capture, hydrogen, and emissions management. It is expected to announce its fiscal Q2 earnings for 2025 after the market closes on Tuesday, Jul. 22. Ahead of this event, analysts expect this energy technology company to report a profit of $0.55 per share, down 3.5% from $0.57 per share in the year-ago quarter. The company has a solid trajectory of consistently beating Wall Street's earnings estimates in each of the last four quarters. In Q1, BKR's EPS of $0.51 outpaced the forecasted figure by 8.5%. Barchart- Commodity Market Roundup- June's Top Performers and Underperformers Iran Concerns and Dollar Weakness Support Crude Oil Prices Nat-Gas Prices Fall as Cooler US Temps Allow Nat-Gas Inventories to Build Our exclusive Barchart Brief newsletter is your FREE midday guide to what's moving stocks, sectors, and investor sentiment - delivered right when you need the info most. Subscribe today! For fiscal 2025, analysts expect BKR to report a profit of $2.38 per share, up 1.3% from $2.35 per share in fiscal 2024. Its EPS is expected to further grow 14.7% year-over-year to $2.73 in fiscal 2026. BKR has lagged behind the S&P 500 Index's ($SPX) 13.2% rise over the past 52 weeks, with its shares up 10.7%. However, it has outperformed the Energy Select Sector SPDR Fund's (XLE) 6.3% loss over the same time frame. BKR released its Q1 results on Apr. 22, and its shares plunged 6.4% in the following trading session. The company's adjusted EPS of $0.51 improved 18.6% from the year-ago quarter and outpaced the consensus estimates by 8.5%. Moreover, its adjusted EBITDA came in at $1 billion, representing a 10% increase from the same period last year. However, its top line performance was disappointing. Orders fell 1.3% year-over-year, resulting in only a slight increase in revenue to $6.4 billion, which missed the analyst estimates by 1.2%. A 7.5% drop in revenue from its oilfield services & equipment segment offset gains in its industrial & energy technology segment and impacted its overall top line performance. Wall Street analysts are highly optimistic about BKR's stock, with a "Strong Buy" rating overall. Among 22 analysts covering the stock, 17 recommend "Strong Buy," two suggest 'Moderate Buy,' and three indicate 'Hold.' The mean price target for BKR is $47.35, which indicates a 22.4% potential upside from the current levels. On the date of publication, Neharika Jain did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
5 minutes ago
- Yahoo
Here's What to Expect From United Parcel's Next Earnings Report
Atlanta, Georgia-based United Parcel Service, Inc. (UPS) is a package delivery and logistics provider that offers transportation and delivery services. Valued at a market cap of $85.5 billion, the company provides a range of time‑definite services including domestic and international package delivery, freight forwarding, supply chain logistics, customs brokerage, and shipping insurance. It is scheduled to announce its fiscal Q2 earnings for 2025 before the market opens on Tuesday, Jul. 29. Prior to this event, analysts project this package delivery and logistics company to report a profit of $1.57 per share, down 12.3% from $1.79 per share in the year-ago quarter. The company has exceeded Wall Street's bottom-line estimates in three of the last four quarters, while missing on another occasion. Its earnings of $1.49 per share in the previous quarter outpaced the consensus estimates by 4.9%. Is Palantir Stock a Buy, Sell, or Hold for July 2025? Is Archer Aviation Stock a Buy, Sell, or Hold for July 2025? Oklo Just Announced a New Nuclear Fuel Deal. Is OKLO Stock a Buy Here? Get exclusive insights with the FREE Barchart Brief newsletter. Subscribe now for quick, incisive midday market analysis you won't find anywhere else. For the full year, analysts expect UPS to report EPS of $7.05, down 8.7% from $7.72 in fiscal 2024. Nonetheless, its EPS is expected to rebound in fiscal 2026 and grow by 14% year over year to $8.04. UPS has declined 23.2% over the past 52 weeks, considerably lagging behind both the S&P 500 Index's ($SPX) 13.2% return and the Industrial Select Sector SPDR Fund's (XLI) 22.8% uptick over the same time frame. On Apr. 29, shares of UPS closed down marginally after its Q1 earnings release, despite delivering a better-than-expected performance. The company's revenue slightly declined year-over-year to $21.5 billion but exceeded the consensus estimates by 2.3%. Higher revenue from its U.S. domestic and international segments were offset by decline in its supply chain solutions segment sales. Meanwhile, its adjusted earnings of $1.49 per share improved 4.2% from the year-ago quarter, surpassing the analyst estimates by 3.5%. UPS' efforts to reconfigure its network and reduce costs across its business supported its profitability. Wall Street analysts are moderately optimistic about UPS' stock, with a "Moderate Buy" rating overall. Among 27 analysts covering the stock, 15 recommend "Strong Buy," one suggests a "Moderate Buy,' nine recommend 'Hold,' and two indicate 'Strong Sell' rating. The mean price target for UPS is $114.36, which indicates a 9.5% potential upside from the current levels. On the date of publication, Neharika Jain did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
5 minutes ago
- Yahoo
What Are the Best Vanguard ETFs for a Well-Rounded Portfolio?
A well-rounded portfolio should include companies of different sizes, industries, and regions. Small-cap stocks and those in emerging markets tend to be on the higher-risk, higher-reward end. Mid-cap stocks can be a nice middle ground between stability and growth potential. 10 stocks we like better than Vanguard S&P 500 ETF › The beauty of exchange-traded funds (ETFs) is that they allow you to invest in many companies at once, providing instant diversification in many cases. Instead of picking dozens or hundreds of individual stocks, you can now get a well-rounded portfolio with just a few ETFs. Four Vanguard ETFs in particular can do the trick for you: the Vanguard S&P 500 ETF (NYSEMKT: VOO), Vanguard Russell 2000 ETF (NASDAQ: VTWO), Vanguard Mid-Cap ETF (NYSEMKT: VO), and Vanguard Total International Stock ETF (NASDAQ: VXUS). Investing in these four ETFs will give you exposure to companies of all sizes, industries, and geographic locations. When you're looking for a well-rounded portfolio, that's what you want. The Vanguard S&P 500 ETF (VOO) contains around 500 of the largest American companies on the market. When you invest in VOO, you know you're getting three things: blue chip companies, a low-cost ETF, and proven results. Since debuting in September 2010, VOO's annual returns have been impressive. Every $10,000 invested then would be worth over $73,000 today when accounting for dividends (as of June 27). By no means does this mean VOO will continue delivering those same returns, but it does show its long-term potential and how lucrative an investment it has been and can be. Given the size, importance, and influence of the companies in the S&P 500, it's often considered a reflection of the U.S. economy. They aren't directly tied, but as the U.S. economy has grown, so has the S&P 500. That's a relationship that has consistently paid off over time. I recommend considering making VOO the bulk of your portfolio. What the S&P 500 is to large companies (those with a market capitalization of over $10 billion), the Russell 2000 index is to "small" companies (those with a market cap between $250 million and $2 billion). The small size of the companies in the Vanguard Russell 2000 ETF (VTWO) can make them more volatile, but it also gives them greater growth potential in many cases. It's a high-risk, high-reward trade-off. VTWO has often outperformed the market during periods of economic expansion, as smaller companies tend to benefit more from increased consumer and business spending. You don't want to put a lot of your portfolio in small-cap stocks due to their high volatility, but that alone warrants some exposure to take advantage of these potential growth opportunities. I personally keep around 5% of my portfolio in small-cap stocks. The Vanguard Mid-Cap ETF (VO) can be a nice middle ground between the S&P 500 and Russell 2000. With market caps between $2 billion and $10 billion, mid-cap companies generally have proven business models and financial stability yet are small enough to be flexible and innovate quicker than many larger corporations. Some notable names in VO include DoorDash, Robinhood, Roblox, and Kroger. Mid-cap companies may not have the same resources and reach as large-cap companies, but they also don't come with as much risk as small-cap companies. It's a worthwhile trade-off, in my opinion. As with small-cap stocks, I try to keep around 5% of my portfolio in mid-cap stocks. Part of having a well-rounded portfolio is being invested in companies across different regions. The Vanguard Total International Stock ETF (VXUS) accomplishes this aim by containing companies from both developed and emerging markets around the world. Developed markets include countries such as the United Kingdom, Japan, Australia, and South Korea. Emerging markets include countries such as Mexico, Brazil, India, and South Africa. Containing over 8,500 companies in total, VXUS is the best of both worlds. On one end, you have the stability that typically comes with established markets. On the other end, you have the high growth potential that typically comes with emerging markets as they begin to expand. One of my favorite parts of VXUS is its dividend, with an average yield of close to 3% over the past five years. A 3% dividend yield isn't mind-blowing, but it's impressive for an 8,500-plus-stock ETF. Around 10% is a solid amount of a portfolio to be in international stocks in most cases. Before you buy stock in Vanguard S&P 500 ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Vanguard S&P 500 ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $722,181!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $968,402!* Now, it's worth noting Stock Advisor's total average return is 1,069% — a market-crushing outperformance compared to 177% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 30, 2025 Stefon Walters has positions in Vanguard Index Funds-Vanguard Mid-Cap ETF, Vanguard S&P 500 ETF, and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends DoorDash, Roblox, Vanguard Index Funds-Vanguard Mid-Cap ETF, Vanguard S&P 500 ETF, and Vanguard Total International Stock ETF. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy. What Are the Best Vanguard ETFs for a Well-Rounded Portfolio? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
