S&P 500 slips, but losses kept in check as Nvidia climbs ahead of results
Investing.com - Evercore has issued a warning that U.S. markets could face a pullback of 7% to 15% heading into the challenging September/October timeframe, citing historically expensive valuations and increasing volatility. The warning comes as the tech-heavy QQQ trades near $562, having delivered a robust 24% return over the past year according to InvestingPro data.
The investment bank notes that investors have grown comfortable with news about tariffs, capital markets, and artificial intelligence, which has gradually pushed stocks to "an historically expensive 25x TTM P/E" ratio. This valuation level, while not as extreme as the 28x multiple seen during the Y2K bubble, leaves stocks vulnerable to correction. InvestingPro analysis shows QQQ maintaining an "EXCELLENT" Financial Health score of 3.87, though its beta of 1.18 suggests higher volatility than the broader market.
Evercore points to several catalysts for the expected volatility, including the August 1 tariff announcements, soft jobs data amid Federal Reserve rate holds, and technology earnings that, while respectable, are facing higher expectations and valuations. The firm also highlights a concerning divergence between the VIX index retesting pre-trade war low levels and high-yield credit default swaps remaining elevated.
Despite the near-term caution, Evercore recommends investors "Stay Invested Strategically in a core thematic portfolio of AI Enablers, Adopters and Adapters" in overweight sectors including Communication Services, Consumer Discretionary, and Information Technology, maintaining that "the Bull Market has further to run." For deeper insights into market positioning and investment opportunities, InvestingPro offers comprehensive analysis tools and portfolio ideas to help navigate market volatility.
For tactical hedging through the anticipated volatility, Evercore suggests three options: purchasing QQQ October 535 puts, substituting call options for core holdings in select AI-focused stocks with low volatility and short interest (naming (NASDAQ:NVDA), (NASDAQ:AMZN), and (NYSE:SNOW) among others), or selling/shorting stocks with unattractive quantitative factors such as high valuation and low sentiment.
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