Morgan Stanley Investment Management's Andrew Slimmon has expressed concern over the influx of retail investor funds into the most speculative areas of the stock market, suggesting it serves as a warning for U.S. stock market bulls. He noted that the rapid rise in stock prices signals the end of a bull market, with the optimism phase accelerating too quickly. Despite increasing risks, such as tariff tensions and the Federal Reserve's plan to maintain high interest rates, the S&P 500 Index has reached record highs.
Barclays' analysis indicates that individual investors' stock exposure is at its highest level since 1997. Meanwhile, JPMorgan's Emma Wu noted that retail investor sentiment has surpassed levels seen during the 2021 meme stock frenzy. The ARK Innovation ETF (ARKK, Financial), which tracks unprofitable tech stocks, has risen about 20% in the past three months. Palantir Technologies Inc. has seen a nearly 50% increase this year.
Slimmon remains cautious but sees opportunities beyond the major tech giants that have driven U.S. stocks higher over the past two years. He is optimistic about the financial sector and believes that market growth is healthy. Despite his short-term concerns, Slimmon has accurately predicted the S&P 500's rise, even when most Wall Street analysts expected losses in 2023.
Looking ahead, Slimmon anticipates increased market volatility by 2025, following two consecutive years of double-digit returns. He believes that buyers entering at high prices are more likely to panic and sell if results disappoint. However, he suggests that a decrease in the fervor for quantum computing and AI stocks could reduce the likelihood of deeper market shocks.
