The S&P 500 just crossed 7,500. The Nasdaq is up about 16% this year. Everyone is feeling rich again.
I have seen this film before also.
I became a Wall Street investment advisor in 1981. I was sitting at a broker’s desk in October 1987 when the market fell more than 20% in a single day. So when things look so good on the surface, I get a little nervous.
Right now, down from those record highs, I’m counting at least five problems at the same time. I think they add a near-term pullback – somewhere in the range of 5% to 10%.
No accident. A pullback. There’s a big difference, and I’ll get to it.
This is the thing that keeps me up at night.
1. Inflation is back in full swing
Inflation had eased to about 2.4% earlier this year. Then the war with Iran set oil prices on fire. By April, Consumer price index was running at 3.8% – The hottest in almost three years.
Gas is up more than 28% from a year ago. Beef is up about 15%. When costs rise so fast, they squeeze your wallet and corporate profits at the same time.
2. The Fed is not coming to the rescue
Over the years, whenever stocks fell, the Federal Reserve cut interest rates and bailed out everyone. not this time.
The Fed has kept its benchmark rate at 3.5% to 3.75% throughout the year and has not made a single cut in 2026. With inflation rising again, it cannot afford. Higher rates make stocks less attractive, period.
3. Stock price is like 1999
That’s the thing that really catches my attention. According to one of the most respected long-term gauges — Yale economist Robert Shiller’s cyclically adjusted price-to-earnings ratio — stocks are more expensive than at almost any time in 140 years.
The reading sits north of 40, which is more than double its historical average. The only time it was higher than this was at the height of the dot-com craze in 1999. You remember how it ended?
Quick gut-check – If your money advice is coming from random online influencers, you’re playing a dangerous game. I’ve been a CPA since 1981 and have been writing about money since before the Internet existed. Sign up for the free Money Talks newsletter and get time-tested expert advice.
4. The entire market is leaning on a handful of AI stocks
Take out a few giant artificial intelligence companies, and this rally becomes much less impressive. AI-related spending accounts for nearly 40% according to Goldman Sachs data S&P 500 earnings growth This year.
A small group of tech names is doing most of the heavy lifting. When so much is riding on so few people, any stumbles turn ugly fast.
5. The calendar is working against you
Summer is historically a sleepy, low-energy time for stocks. Layer on the midterm election year – historically the weakest patch of the four-year cycle – and you’ve got a recipe for volatile months. Large institutional investors are already playing a defensive role.
Why am I not selling any shares?
Now for the good news, because there’s a lot.
Pullback is not a disaster. This is a normal, healthy part of how the market works. And there’s something solid laying a floor beneath it: earnings are rising rapidly.
In the first quarter, S&P 500 profits rose more than 28% from a year earlier — the strongest in four years, according to FactSet. About 84% of the companies outperformed expectations.
Analysts expect full-year profits to rise about 21%. Goldman just raised its forecast, betting that these earnings will keep stocks strong.
So I think any decline is temporary. Shares could fall 5% to 10% this summer and resume their climb later this year as profits pick up. Expensive markets can remain expensive for a long time as companies continue to make money.
what to do now
So what should a regular investor do with all this? Honestly, less than you would think.
First of all, don’t try to time it. I’ve seen people get this wrong for over 40 years. Guessing the exact top and bottom is a loser’s game – trying to time the market ruins more retirements than any crash.
Second, keep doing what works. If you’ve been regularly buying a low-cost index fund, keep buying. A pullback simply means that your next few purchases are on sale.
Third, keep some cash with you. Not because you can beat the market, but because corrections give patient investors a gift: a chance to buy good companies cheap.
And if the stock falls, don’t panic and sell. Here’s what history says about corrections, crashes, and exits from bear markets – the short version is that they almost always happen, and it’s those who get hurt when they run out.
I’m not predicting doomsday. I’m telling you exactly what I see: an expensive market, real headwinds, and a calendar working against us – balanced against the best corporate earnings in years.
My bet is that there will be ups and downs in the summer followed by an improvement. But I have been wrong before and so has everyone who calls the market. That’s why your plan matters more than my forecast.
Arrange things so you’re okay, whether I’m right or wrong. It’s how you sleep at night – and how you build real wealth over time.
Ready for another set of expert eyes?
SmartAsset’s advisor matching algorithm Analyzes your location, investable assets and financial goals to identify three compatible fiduciary advisors from its network of qualified professionals.
The matching process requires a few questions covering your age, investable assets, zip code, financial preferences and timeline. Each Matching Advisor must maintain proper FINRA/SEC registration and serve as a fiduciary (legally bound to put your interests first).
Zero cost of use. No phone number is required to watch the preliminary match. The entire matching process takes approximately 2 minutes to complete.
Find your financial advisor match