Intel surges as Nvidia takes $5B stake
Global stock markets are setting records at a breathtaking pace. The MSCI All Country World Index, the S&P 500, Japan’s Nikkei 225 and South Korea’s Kospi have all recently hit new heights.
These are extraordinary milestones, but they are also flashing caution signals. Whenever prices outpace the real economy, risk is rising even when sentiment suggests otherwise.
The rally has been fuelled by stronger-than-expected corporate earnings, especially in technology and consumer discretionary sectors, and by expectations that the US Federal Reserve will continue cutting rates into year-end, starting Wednesday. Liquidity is plentiful, the oxygen of bull markets.
Yet liquidity is no substitute for an economic foundation. US consumer inflation remains near 3%, the highest since January, and the new tariffs introduced by President Trump are already feeding through global supply chains.
Markets are pricing in perfection with cheaper money, steady growth, and permanently rising profits. History shows that such assumptions rarely end well.
Technology illustrates the mood. Oracle’s (NYSE:ORCL) market value jumped more than $240 billion in a single session after an AI forecast. Genuine innovation is reshaping industries, but investors appear willing to pay almost any price for the mere promise of leadership.
When a narrow group of mega-cap tech companies drives global index performance, portfolios become exposed to sudden disappointment, whether from an earnings miss, regulatory intervention or a sharp change in monetary expectations. History shows that when just a few companies carry the market, volatility eventually follows.
The global backdrop adds complexity. European benchmarks are buoyant despite sluggish growth and fragile consumer confidence. China’s industrial rebound remains uneven, and the latest round of US tariffs has yet to show its full impact on Asian exporters.
Meanwhile, the US dollar has softened on the prospect of further Fed easing. Any sign of hawkishness or a fresh escalation in trade tensions could send the dollar sharply higher, tightening global financial conditions and putting pressure on emerging markets that have relied on inexpensive dollar funding this year. For globally mobile investors, active currency management is not optional; it’s central to long-term capital preservation.
In such an environment, investors must resist momentum and review portfolios with an unsentimental eye.
Where positions, particularly in tech, have swollen beyond their intended weight, trimming and reallocating to areas with steadier valuations and dependable cash flow is prudent. Diversification must be deliberate, spanning regions and asset classes to counterbalance heavy US exposure. Opportunities exist in selective European equities, high-grade Asian credits, and real-asset strategies.
Alternatives such as infrastructure, private credit, or carefully chosen hedge funds can provide valuable shock absorbers when public markets falter.
Liquidity, too, demands attention. Strong markets can lull investors into illiquidity, yet the ability to raise cash quickly allows families and institutions to seize opportunities when volatility returns. Liquidity is an offensive as well as a defensive tool.
Extraordinary highs demand extraordinary discipline. It is tempting to believe that central banks will underwrite asset prices indefinitely or that technological innovation will justify any valuation. Such assumptions are rarely rewarded.
My own outlook remains constructive. Global growth is not collapsing, many leading companies have robust balance sheets, and there are genuine opportunities for patient capital. But optimism must be balanced with realism.
Markets can certainly climb higher, yet that’s not a reason to relax risk management. On the contrary, buoyant prices are the moment to prepare carefully for the future.
Capital preservation is the first duty, and compounding is a close second. This rally offers the chance to secure both, provided investors maintain clarity of purpose and refuse the easy narrative that rising prices mean falling risk.