If you read my post yesterday, markets might feel unstoppable. However, it's important not to get complacent. There's definitely some level of froth and FOMO in markets right now. There is also a lot of liquidity in the market as markets have become more assessable than ever. I'm still seeing a lot of speculation through these meme stocks and retail investors using leverage.
With all this euphoria I think it's a good time to write about risk in your portfolio and make you think about taking some profits in any stock that has surged this year. The S&P 500 hit 35 record closing highs on Monday. From a trailing price-to-earnings (PE) ratio perspective, the S&P 500 is trading at 28 times compared to a historical mean of about 15 times.
Then there is a group of stocks that are very overweight in almost every portfolio. Apple (AAPL) have gained 30% since April, allowing it to take back the title as the world's most valuable company ($3.55 trillion market cap) from chip beast Nvidia (NVDA) ($3.15 trillion market cap). Let's not forget that NVDA has gained 166% YTD.
We also have Microsoft (MSFT), Apple, Alphabet (GOOG, GOOGL), Amazon (AMZN), and Meta (META) are all trading at record high valuations. Today the top 10 companies in the S&P 500 make up 35% of the market cap, but only 23% of earnings. This type of concentration can cause whipsaw effects when markets start to pullback. Given the near-term risks such as a contentious presidential election cycle I would take some time to look at your portfolio risk and time horizon.
