It might be tempting to write off the market pullbacks of the past two Mondays as unrelated and even somewhat isolated incidents that spiked briefly with extreme volatility. But the market might be sending investors and financial advisors a bigger message beyond day-to-day dips and recoveries.
Focusing on the broad market S&P 500 Index, valuations are lofty by almost any measure. Not at record levels, by historical standards, but high enough to give nervous investors cause for concern when news reports spark a reaction.
This appears to be where we are right now: Not necessarily at the point where selling and heading for cover is the best strategy, but wholly reflective of a jittery, trigger-happy investor universe.
“We've had two consecutive years of 25% gains in the S&P 500 and valuations are historically high, especially for mega-cap tech,” said etf.com Research Lead Kent Thune.
“Investors are expecting a catalyst to bring it all down, and kneejerk reactions become more common in this environment,” he added. “After the events occur, cooler heads prevail, and the market resumes its upward march.”
Thune, who also works with individual investors as a financial advisor, added that what could be described as recent market head fakes will eventually lead to a “real catalyst” for a market correction, “but it’s anyone’s guess about when or how large it will be.”
Tom Graff, chief investment officer at Facet in Phoenix, Maryland, describes the market’s current inflection point as “two big narratives crashing together.”
“The market is very expensive, especially in AI-related stocks, and this is putting a lot of pressure on this earnings season,” he said.
The threat posed by Chinese artificial intelligence upstart DeepSeek emerged last week as a reminder that many of the companies leading the broad markets these past few years are vulnerable.
The tariff scare created by the Trump administration this past Monday, which like the DeepSeek scare a week earlier, simmered over the weekend, and rose to a boiling point by the time the markets officially opened for business.
“Given how aggressively Trump is pursuing a variety of his priorities, it is making Wall Street all the more nervous about tariffs,” said Graff. “Sure, the first couple of salvos at Mexico and Canada were pulled back at the last minute, but everyone knows that this won't be the last round of tariffs.”
Not to downplay the significance of the two market-jarring catalysts, it does underscore the reality of an increasingly anxious market.
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“Market reactions over the last two Mondays tell you that there is a lot of air under the market,” said Paul Schatz, president of Heritage Capital in Woodbridge, Connecticut.
“A number of positive outcomes are clearly priced in, and you have some of the most bullish behavior from options traders and that kind of giddy and greedy sentiment is rarely rewarded, especially after a run to or near new highs,” he added. “It also tells us that an awful lot is not priced into the markets, because I was a little surprised that the markets did not believe tariffs were coming.”
