Stock Valuations Soar as Market Faces Historically Weak Season U.S. stocks have stumbled since early August, and Wall Street strategists are warning the slide may deepen. Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, expects a 7% to 15% pullback by mid-October. Deutsche Bank strategists also foresee weakness, though they anticipate a more moderate decline. Despite near-term risks, Emanuel believes the long-term bull market remains intact and says deeper drops could attract dip buyers. Instead of selling outright, he recommends investors consider hedging strategies to protect portfolios. Valuations Back at Extreme Levels The Shiller CAPE ratio — a cyclically adjusted P/E metric — recently topped 38, its highest since late 2021. That previous peak preceded the S&P 500’s worst year since 2008 as the Federal Reserve’s aggressive rate hikes triggered a market rout. While Emanuel doesn’t expect a repeat, elevated valuations leave stocks vulnerable to negative surprises. Seasonal Weakness Ahead The stretch from August to October is historically the weakest for U.S. equities, according to BTIG’s Jonathan Krinsky. Although the relative strength index has cooled from overbought territory, it remains elevated — a signal that the current downturn could extend, noted Mark Hackett of Nationwide. Volatility Starting to Rise Wall Street’s “fear gauge,” the Cboe Volatility Index (VIX), is rebounding from its lowest level since January. Emanuel sees this as mean reversion, implying volatility could continue climbing in the weeks ahead.

Jefferies: Fed Cuts May Spark Shift Away from Big Tech The S&P 500 fell 1.6% on Friday—its worst session since May—after soft jobs data and renewed tariff concerns rattled markets. But U.S. stock futures on Monday hint at a partial rebound, and some strategists remain optimistic despite near-term headwinds. According to Jefferies, investors now face a roughly seven-week period marked by a weakening labor market and limited central bank support. The Fed is widely expected to cut interest rates by 25 basis points at its September 17 meeting, lowering the target range to 4.00%–4.25%. Still, Jefferies remains positive. “It’s a tougher sell after this week, but we still believe equities are heading higher,” they wrote over the weekend. Strong second-quarter earnings are one reason: two-thirds of S&P 500 companies have reported so far, and 85% have beaten expectations—lifting earnings forecasts and supporting stock prices. But Jefferies is growing cautious on Big Tech. The sector now makes up a record 44% of the S&P 500 by weight—surpassing the 2000 dot-com peak. While still delivering solid results and acting as a defensive play, Jefferies questions how much longer that leadership can last. They’re not calling it a bubble, but note that valuations are stretched. The premium on tech versus the cheapest stocks is in the 87th percentile historically—making the trade look “long in the tooth.” More importantly, Jefferies notes that rate cuts tend to favor the equal-weighted S&P 500, which gives more influence to smaller names outside tech. Historically, most periods of outperformance for equal-weighted stocks have come when the Fed is easing policy. “We’re not predicting a major tech selloff,” Jefferies says. “But with the Fed turning dovish, history suggests a rotation may be starting. Friday’s payroll data could be the signal: it might finally be time to shift out of large-cap tech.”