U.S. stocks may not be in a bubble, but a pullback could be near

Some market participants believe the relentless U.S. stock rally is poised for a breather, even if it remains unclear whether equities are in a bubble or a strong bull run.

“A lot of good news is priced into the market,” said Michael Arone, chief investment strategist at State Street Global Advisors. “From my perspective that just suggests that the risks are skewed to the downside.” Significant sell-offs followed the last two times the index exceeded those levels: a 10 per cent drop in the S&P 500 in January 2018 and a 30 per cent plunge as COVID-19 emerged after the index topped that level in January 2020.

“The sentiment backdrop right now … makes the market vulnerable to a turn lower,” said Kevin Gordon, senior investment strategist at Charles Schwab.

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