The U.S. markets, currently near record highs, may be underestimating potential risks, according to Megan Horneman, Chief Investment Officer of Verdence Capital Advisors. With the August 1, 2023, deadline for U.S. tariffs approaching, Horneman warns that the market’s optimism could lead to a significant correction if circumstances change.
In an interview on CNBC’s “Fast Money,” Horneman expressed concern about an excessive sense of complacency surrounding the upcoming trade deadline. She oversees approximately $4.1 billion in assets under management and noted that the market appears to be pricing in an ideal scenario. “This market is pricing in the perfect situation,” she emphasized.
Horneman highlighted several factors contributing to her cautious outlook. Alongside the looming tariff issues, she pointed to uncertainties regarding Federal Reserve policy and what she describes as overbought conditions in growth stocks, particularly in the technology sector. “Once we see that rate cuts might be priced off the table, coinciding with the fact that we’re not quite sure what’s going to happen with the tariff perspective, I think you can see a bit of a valuation correction,” she explained.
Her analysis reflects a broader concern about the current state of the market. Technical indicators suggest that many growth stocks, including major players in Big Tech, are trading at elevated levels. “These are things that we think might upset the rally that we’re seeing here,” Horneman added.
Despite her short-term caution, Horneman maintains a long-term optimistic view on the markets. She believes that pullbacks present opportunities for investors, particularly in international stocks, which she ranks among her preferred investments during periods of market weakness. “I’d warn that right now, they’re expensive from a valuation perspective but cheap compared to the U.S.,” she stated. “They’ve been underloved for way too long, and I think you’re seeing some of that rotation just begin. I think that can continue.”
To navigate the current climate of uncertainty, Horneman advises investors to ensure their portfolios are appropriately allocated. This sentiment is echoed by fellow “Fast Money” trader Guy Adami, who expressed concerns about retail investors driving recent market gains. “Just in terms of valuation, things have gotten a tad frothy here,” he remarked during the same segment.
The S&P 500 index recently closed at record highs for an entire week, having surged 16% over the past three months, while the Nasdaq has seen an even more impressive increase of 21% in the same timeframe.
As the August deadline approaches, investors are urged to remain vigilant and consider the broader implications of trade negotiations and Federal Reserve actions on market performance.