Growing apprehensions surround the US stock market as its steep rise, particularly in tech stocks, sparks fears of a deep correction. Market participants and experts appear sharply divided on whether this rally is sustainable or a bubble waiting to burst.
A Market of Two Halves: Concentration vs. Broad Weakness
One section of investors points to stretched valuations, slowing economic momentum, and the concentration of gains in a few mega-cap tech stocks as potential triggers for a sharp correction in US equities. In contrast, a bullish camp argues that strong earnings and AI-driven productivity gains fully justify the current market levels, suggesting the rally has further to run.
The numbers are indeed striking. The S&P 500 has gained 16% this year so far, while the tech-heavy Nasdaq has surged an impressive 20% year-to-date (YTD). However, experts caution that the headline index performance masks a more complex reality.
Arindam Mandal, Head of Global Equities at Marcellus Investment Managers, provides crucial context. He explains that while the S&P 500 trades at about 21 to 22 times forward earnings—a level considered high by historical standards—the distribution of these valuations is profoundly uneven.
"The ten largest companies trade in the high twenties to mid-thirties on free cash flow multiples once one adjusts for the heavy capex spend now underway. Outside this small group, the picture looks very different. Roughly 70% of S&P 500 constituents have barely moved over the last three to four years," Mandal stated.
This indicates that the market's strength is not broad-based. Mandal further notes that equal-weight indices, midcaps, and high-quality companies in sectors like industrials, consumer goods, and healthcare still trade at reasonable, and in some cases, below-average valuations, despite sound fundamentals.
US Macro Economy: Stable Amidst the Chatter
Despite growing chatter about a potential economic slowdown, the underlying US macroeconomy appears to be in fairly stable shape. While some softness has emerged in the job market, analysts do not see an alarming situation.
"Real wage growth has been positive for a while. Unemployment has drifted higher, but at a slow and controlled pace that can help ease inflation pressures. As long as unemployment stays comfortably below 5%, the economy is not showing the typical signs of a downturn," Mandal elaborated.
He also highlighted that household and large corporate leverage is at relatively low levels compared to the last two decades. This financial resilience suggests the environment, while challenging, is not necessarily sliding into a deep contraction.
Investment Strategy for Indian Investors: A Balanced Path
So, is it the right time for Indian investors to buy US stocks? The consensus among experts is to adopt a balanced and disciplined approach rather than taking an aggressive all-in or all-out stance.
Arindam Mandal advises against a one-dimensional strategy. "Reducing exposure to strong technology or AI platforms solely because of recent gains may not always be justified, especially when their competitive positions remain robust. At the same time, concentrating only on these names can increase sensitivity to any disappointment," he said.
He recommends a mix of durable, proven franchises alongside selectively adding to areas with higher earnings surprise potential and more reasonable valuations. Mandal pointed out that several high-quality companies in consumer, select industrials, and healthcare are trading at sensible valuations and could benefit if the real economy stabilises and the investment cycle broadens.
Subho Moulik, Founder and CEO of Appreciate, suggests a similar path of selectivity. He advises investors to trim exposure to overvalued pure-play AI stocks while maintaining positions in well-capitalised infrastructure providers with solid fundamentals.
"The AI theme is real, and tech giants are investing trillions, but history reminds us that not every AI company will succeed. The prudent approach focuses on companies with demonstrated earnings power and reasonable multiples, rather than chasing hype," Moulik cautioned.
According to Ross Maxwell, Global Strategy Lead at VT Markets, the most practical approach is to avoid reacting to extremes. "Trimming exposure if overweight US equities would be prudent, especially in overweight Tech positions. But they should not be looking to fully exit the market or avoid AI-related sectors altogether," Maxwell stated.
He believes that secular themes like cloud computing, cybersecurity, semiconductors, and AI infrastructure can still offer long-term compounding opportunities even if near-term volatility persists. The key for investors is to maintain a long-term perspective, avoid emotional decisions, and align their strategy with their individual risk tolerance and financial goals.
