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👉 The Stock Market: Updates in 30 Seconds or Less ✍
👉 Stock Market Valuations and Concentration Risks: August 2025 Outlook 🔎
👉 Are We Heading For A Recession? Here’s How To Protect Yourself 🪖
👉 Take Back Control of Your Money: Financial Domination is the Key 🔑
“You can lose money very fast, in two months, but you very rarely make money very fast in the stock market. When I look back, my great stocks took a long time to work out.”
The Stock Market in 30 Seconds or Less
A federal appeals court struck down Trump’s signature tariffs on Friday, ruling that his use of emergency powers to reshape U.S. trade policy was considered “excessive”.
U.S. stocks fell Friday, with the Nasdaq dropping 1.2% as major AI stocks fell due to weak AI-related results.
Inflation held steady at 2.6%, boosting expectations for a September Fed cut, now sitting at an 87% likelihood.
The S&P 500 saw its 4th consecutive monthly gain despite a weak jobs report and newly announced tariffs.
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Stock Market Valuations and Concentration Risks: August 2025 Outlook
As we wrap up the month of August 2025, the stock market continues to show warning signs of extended valuations and heavy concentration in a handful of mega-cap stocks.
The S&P 500 has surged this year, up 10% YTD as I write this, but a lot of those gains can be attributed to the “so-called’ Magnificent 7: Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla, which now account for over 30% of the indexes total market capitalization.
We’ve seen this before in the dot-com bubble, where similar tech dominance led to the S&P 500 losing more than 60% of its value.
I’m not writing this post to scare you, but rather make you aware of the risks associated with a market such as this.
Valuations are sky-high and the market is expensive, that’s a reality.
The S&P’s forward P/E ratio hovers around 22x, well above the historical average of 17x. These are in fact “nosebleed” levels that create a larger risk for a potential correction, or worse, another recession.
The chart below shows where we sit today in relation to market highs in 1929, 1965 and 1999. Something has to give.
If you’re tracking this “potential downturn”, here are some factors you may want to follow:
Rising 10-year Treasury Yields: investors are always seeking the strongest risk-adjusted returns. If they can earn safer returns in something like a bond, they’ll tend to sell riskier investments such as stocks. The 10-year treasury sits at 4.23% today, and the S&P 500 forward earnings yield is 4.29%. What this means is that investors are only generating a small premium for holding stocks over the safer return on bonds. This poses the question: why buy stocks right now?
AI Spending During Rising Tariffs: In Q2 2025, AI spending was estimated at 1.3 percentage points of the 3.3 percentage growth in GDP (about 40%). What does this mean? It means a slowdown in AI spending could lead to a drastic decline in economic growth, because it made up such of large percent of the growth in the previous quarter. And given the high concentration of the S&P 500 in AI related stocks, any slowdown in spending could have a large impact on the market. If you’re holding individual companies, it may be wise to track the Return on Invested Capital (ROIC) for these AI investments. A recent MIT study found that despite a $30-$40 billion investment in generative AI, 95% of companies are seeing no return. That could be a problem in the short term, especially as costs continue to rise as a result of Tariffs.
Unemployment: A good test of the economies strength are the unemployment figures. The market was shocked in July to see that the economy gained just 73,000 jobs vs. an estimate of 115,000. Less jobs = less disposable income = less economic activity = lower company earnings = lower stock prices.
But enough about the bad stuff, here’s how you protect yourself from holding a potential falling knife.
To mitigate these risks, investors should be prioritizing diversification strategies.
Shifting towards equal-weighted S&P 500 ETFs, thereby reducing your exposure to mega-cap stocks have shown to outperform during periods of high volatility.
You may also want to consider exploring international markets, as global diversification can help buffer companies that are concentrated in the U.S.
Start looking at small-cap stocks and stocks trading closer to or below fair value. Low-volatility and defensive stocks, like utilities or consumer staples, provide more stability in your portfolio.
Also discount stores always do well when the economy is under pressure. Think $WMT ( ▲ 0.31% ) $DOL.TSX ( ▼ 0.13% ) $DLTR ( ▼ 1.95% ) $TGT ( ▼ 1.33% ).
Finally, and considering the 10-year Treasury Yield, perhaps allocating some of your portfolio to a bond or cash-like instrument can help preserve your capital during a downturn.
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In this type of market, diversification isn’t just a buzz word, it’s vital for long-term wealth preservation.
Becoming a good investor isn’t just about picking the right stocks, its also about risk management.
It’s not about how much you make, it’s about how much you can keep.
Become sustainable long term and your portfolio will reward you.
If you want to read more about the “bubble” in the tech sector, click below to read one of my past posts.
I’ll be giving my kids a weekly allowance
But they’ll have to invest 50% of the money
It won’t be a large sum, but starting then young will prove to be significant over a long period of time
Teaching your kids these habits from a young age is vital
— #THE DIVIDEND DOMINATOR (#@TheAlphaThought)
12:58 PM • Aug 29, 2025
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