Stocks Are Soaring, But Are We Ignoring the Risks?

Valuations are back in the danger zone

After a rough month of April, the stock market has come roaring back. Since the low reached in April, we have witnessed a sharp rebound across major indices and individual stocks. A few notable performances:

• +50% for NVidia

• +25% for Amazon

• +45% for Uber

• +20% for the S&P 500 overall

This impressive rally has largely erased fears tied to tariffs and trade tensions, with investors focusing instead on strong earnings and a resilient consumer. But is this recovery built on solid ground or wishful thinking?

Let’s explore a few contrarian signs that suggest the market may be glossing over deeper risks. The goal is not to spread fear or encourage panic selling, but to shed light on some overlooked risks so investors can better understand the current landscape and adjust their strategies accordingly.

Tariffs might be lower than expected, but not gone. And they will still hurt

While the worst-case trade war scenario has been averted (for now), tariff relief is partial and fragile. Some recent trade agreements are indeed favorable for the US, but even modest tariff increases can ripple through the economy:

• Higher prices on imports raise inflation

• Inflation weighs on real wages, squeezing consumers

• Consumers cut back, which affects corporate earnings

Trump’s recent declaration (threatening Apple with tariffs and the EU to add more pressure in negotiations) demonstrates that tariffs remain a current and pressing issue. In short, the market may be celebrating too soon. Tariff-related inflationary pressure has not vanished, the impact will only become apparent in a few months / quarters.

The same black swans are still out there

In a previous article, I outlined several potential black swans. You can read it here.

Two Black Swans that Should Not Be Overlooked

While I will not revisit the entire article, here are some of the most pressing risks today:

• The US debt load continues to swell, now surpassing $34T with nearly $9T set to be refinanced this year alone. On top of that, corporate leverage remains high, and public finances in countries like France, Japan or Italy are increasingly fragile. This combination points to a structurally vulnerable foundation for the global economy. Meanwhile, rising yields on 10y and 30y US Treasuries only amplify the pressure, underscoring the growing risk in the system

• The risk of a recession has diminished, but it has not disappeared

• Geopolitical risk remains elevated, especially around China and Taiwan. A military escalation in the region could shock global markets, disrupt supply chains, and cause a flight to safety

These are not hidden threats. They are visible, yet oddly discounted in today’s pricing.

A market priced for perfection

Yes, we are seeing:

• Strong quarterly earnings

• AI-driven optimism across sectors

• Consumer resilience in spending data

But here is the problem: the market has already priced in a lot of good news. After briefly touching average valuations post-April pullback, the rebound has re-inflated valuation multiples. Many growth names are once again trading well above their 10-year averages.

Very optimistic sentiment + elevated valuations = higher risk of correction

The higher the expectations, the less room there is for disappointment.

My position: cautiously invested

Long-time readers know I am neither a permabear nor a permabull. I believe in staying grounded, selectively invested in promising companies, and always prepared for volatility.

Right now:

• My portfolio holds just over 10% in cash, a buffer that gives me flexibility

• This cash is earmarked for opportunities should we face a significant pullback, just as I did during the last major downturn, when I deployed 30% of available cash near the lows

Being cautious does not mean being out of the market. It means being strategically ready, without overextending into a potentially fragile rally.

Stay cautious, stay safe

Markets can remain expensive for extended periods, and trying to time every correction is a fool’s errand. But being prepared is not the same as panicking.

Stay disciplined. Stay patient. And don’t forget: a -20% to -40% correction is always possible, especially when optimism runs this high.