Equities Move Higher, But Valuations Concern

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Equities resume run higher, despite stretched valuations.  A record $448 billion has flowed into US equities year-to-date, marking the highest amount in over two decades.  Investors, most especially retail investors, are piling into equities, and in some cases, not exactly for the right reasons.  Companies are acquiring asset classes like digital currency and are getting caught up in the buying frenzy.  Just last week, MicroStrategy, Inc. (MSTR) issues convertible bonds in order to purchase more bitcoin and the stock price shot higher.  It's reminiscent of the "meme stocks" in 2021, which did not exactly end well.

While Jobless Claims has eased as of late, Continuing Claims (those unemployed who have claimed unemployment insurance for multiple weeks) continues to rise.  What it means is that while layoffs are somewhat manageable, for those who do lose their job, there are not many jobs available for rehire. Historically speaking, since 1950 the 3rd year of a bull market (which next year would be year 3 of the current bull market) is typically the weakest. A cooling labor market might mean fewer discretionary purchases by consumers and lower earnings. Analysts have been steadily revising earnings expectations downward for 2025. In fact, the majority of the decline in earnings is expected to from the Mag 7 names. It will be a holiday-shortened week, so we would expect a little less trading volume this week - which hopefully means stable volatility.
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