The S&P 500 just punched through 7,500. The Nasdaq is up about 16% this year. Everybody’s feeling rich again.
I’ve seen this movie before.
I became a Wall Street investment advisor in 1981. I was sitting at a broker’s desk in October 1987 when the market dropped more than 20% in a single day. So when things look this good on the surface, I get a little nervous.
Right now, underneath those record highs, I count at least five problems lining up at the same time. I think they add up to a near-term pullback — somewhere in the 5% to 10% range.
Not a crash. A pullback. There’s a big difference, and I’ll get to it.
Here’s what’s been keeping me up at night.
1. Inflation came roaring back
Inflation had cooled to about 2.4% earlier this year. Then the war with Iran lit a fire under oil prices. By April, the Consumer Price Index was running at 3.8% — the hottest in nearly three years.
Gas is up more than 28% from a year ago. Beef’s up almost 15%. When costs climb that fast, they squeeze your wallet and corporate profits at the same time.
2. The Fed isn’t coming to the rescue
For years, every time stocks wobbled, the Federal Reserve cut interest rates and bailed everybody out. Not this time.
The Fed has held its benchmark rate at 3.5% to 3.75% all year and hasn’t cut once in 2026. With inflation heating back up, it can’t afford to. Higher rates make stocks less attractive, period.
3. Stocks are priced like it’s 1999
This is the one that really gets my attention. By one of the most respected long-term gauges — Yale economist Robert Shiller’s cyclically adjusted price-to-earnings ratio — stocks are more expensive than they’ve been at almost any point in 140 years.
The reading sits north of 40, more than double its historical average. The only time it was ever higher was the peak of the dot-com mania in 1999. You remember how that ended.
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4. The whole market is leaning on a handful of AI stocks
Strip away a few giant artificial intelligence companies, and this rally gets a lot less impressive. Goldman Sachs figures AI-related spending is driving roughly 40% of the S&P 500’s earnings growth this year.
A small group of tech names is doing most of the heavy lifting. When that much rides on so few, any stumble gets ugly fast.
5. The calendar is working against you
Summer is historically a sleepy, low-energy stretch for stocks. Layer on a midterm election year — historically the weakest patch of the four-year cycle — and you’ve got a recipe for choppy months. Big institutional investors are already playing defense.
Why I’m not selling a single share
Now for the good news, because there’s plenty.
A pullback isn’t a catastrophe. It’s a normal, healthy part of how markets work. And there’s something solid holding a floor under this one: Earnings are booming.
In the first quarter, S&P 500 profits grew more than 28% from a year earlier, according to FactSet — the strongest in over four years. About 84% of companies beat expectations.
Analysts expect full-year profits to climb around 21%. Goldman just raised its forecast, betting those earnings keep powering stocks higher.
That’s why I think any drop is temporary. Stocks could slide 5% to 10% this summer and still resume their climb later this year as those profits roll in. Expensive markets can stay expensive for a long time when companies keep minting money.
What to do right now
So what’s a regular investor supposed to do with all this? Honestly, less than you’d think.
First, don’t try to time it. I’ve watched people get this wrong for more than 40 years. Guessing the exact top and bottom is a loser’s game — trying to time the market wrecks more retirements than any crash ever did.
Second, keep doing what works. If you’re regularly buying a low-cost index fund, keep buying. A pullback just means your next few purchases are on sale.
Third, keep a little cash handy. Not so you can outsmart the market, but because corrections hand patient investors a gift: the chance to buy good companies cheaper.
And if stocks do drop, don’t panic-sell. Here’s what history says about riding out corrections, crashes and bear markets — the short version is they almost always pass, and the folks who flee at the bottom are the ones who get hurt.
I’m not predicting doom. I’m telling you 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 a bumpy summer followed by a recovery. But I’ve been wrong before, and so has everyone else who’s ever made a market call. That’s exactly why your plan matters more than my forecast.
Set things up so you’ll be fine whether I’m right or wrong. That’s how you sleep at night — and how you build real wealth over time.
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