The stock market’s current high valuations have raised concerns among investors and traders. According to a recent study from Charles Schwab, two out of three traders believe the market is overvalued. The study, conducted from Jan.
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8-17, captured responses from 1,040 active trader clients at Charles Schwab. Active traders cited megacap tech and artificial intelligence stocks as the most crowded trades.
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“It’s clear that the majority of traders believe there’s some froth in the market but, on balance, they also feel like there’s still more room for the bulls to run,” said James Kostulias, head of trading services at Charles Schwab.
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Traders expressed the most bullish sentiment towards energy, IT, finance, and utilities stocks, while real estate, consumer discretionary, and healthcare sectors received the most bearish outlook. Concern about stock valuations has started to impact the names that have led the market over the past year. Shares of Robinhood have plunged more than 25% in the past five sessions.
Other leaders under pressure include JPMorgan, Goldman Sachs, and Palantir, all of which have underperformed the S&P 500 in the past five sessions.
Investor caution and sector outlooks
Palantir has lost the most, with a 30% plunge.
The long-term leaders of the bull market, known as the “Magnificent Seven” trade of Meta, Amazon, Google, Nvidia, Microsoft, and Tesla, have also shown mixed performance in 2025. Only Meta has meaningfully outperformed the S&P 500 this year, with shares up 12% year to date despite an 8% sell-off in the past five sessions. AI darling Nvidia is down 5% year to date, while Tesla’s slide this year has reached 25%.
“If the largest, best-performing names have lost their market leadership for now, it may be hard for the indices to make new meaningful highs in the short-term,” said Jeff Jacobson, strategist at 22V Research. The Nasdaq Composite, Dow Jones Industrial Average, and S&P 500 are all slightly lower in the last month. Truist’s co-chief investment officer wrote in a client note this week, “Although the primary stock market uptrend remains intact and our team’s work suggests recession risks remain relatively low, the near-term risk/reward appears more mixed.
Indeed, we have seen modest deterioration in earnings, technical, and economic trends that warrant a more neutral equity posture and slightly higher cash.”
The long-term market bull downgraded his view on stocks to Neutral and rated small-cap stocks as less attractive while upgrading cash to Neutral. “The S&P 500’s forward earnings estimates, a key pillar of this bull market, have flatlined over the past month,” he added. “While this may only be a temporary pause, this moderation in earnings estimates is currently being confirmed across market caps.
The flatlining of earnings is occurring at a time when the S&P 500 trades at the top-end of its valuation range.”