Stocks are on a roll, but it might be time for investors to take some profits, one strategist warned.
Liz Ann Sonders, the chief investment strategist of Charles Schwab’s Schwab Center for Financial Research, highlighted what she called “casino-like behavior” among investors as markets climb to new highs. The strategist encouraged investors to rebalance their portfolios to avoid getting caught up in a concentration risk trap.
“I have been very focused on the blurring of the lines between gambling and investing and some of the casino-like behavior that we’re seeing in markets, and there’s no question that there’s speculative juices flowing here,” Sonders said this week.
The S&P 500 recorded its ninth consecutive week of gains, notching several fresh record highs along the way, fueled by blowout earnings and huge stock rallies in stocks like Snowflake and Dell.
The gains come even as the war in Iran and the historic oil shock continue. Potential rate hikes, surging bond yields, and inflation concerns are among the growing list of worries for investors, but the relentless rally has yet to show signs of stumbling.
“It won’t last forever”
Strong earnings have fueled the rally, with some stocks seeing massive gains after delivering better-than-expected earnings prints.
“The earnings coming out of Corporate America this quarter have been, frankly—and I have no other way to state this—stunning,” Siebert Financial CIO Mark Malek said, calling out the best quarterly earnings seasons since 2021.
Within the strong quarter, there were some names that stood out with notable upward moves.
Dell stock skyrocketed 35% higher after reporting first quarter earnings results that crushed analyst estimates. Snowflake shares also saw massive gains, surging nearly 40% after posting a blockbuster print and announcing an expansion of its Amazon partnership.
“It won’t last forever,” Sonders said on the earnings-fueled rally, adding, “There’s risk associated with some of these parabolic moves.”
“No one ever went broke taking profits”
It may be tempting to ride out a winning streak and let the gains keep piling up, but Sonders warned that investors need to stay disciplined to protect themselves from undue risk.
“I think there’s a lot of short-term oriented money that is looking for those next moves and is treating stocks to some degree like lottery tickets,” the strategist said, explaining that recent upward swings in the market could lead to higher concentration risk.
Sonders said it’s time for investors employ a rebalancing strategy to make sure their portfolio isn’t overly concentrated on any particular part of the market, especially during a time when speculative momentum is in the drivers seat.
“Heed the old line of, ‘no one ever went broke taking profits,'” she said, adding “I understand the desire to let winners run, but I do think that a rebalancing strategy is the best way to think about reigning in some of where that speculative excess might cause some concentration problem in your own portfolios.”
