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The stock market is going full tilt into risk after the latest inflation report. But not everybody is optimistic. The S & P 500 reached an all-time high on Tuesday after the cooler consumer price index report from July sounded the all-clear for the Federal Reserve to cut in September. On Wednesday, more investors were buzzing about the possibility of an ultra-big cut next month of a half-percentage point — adding to the positive mood on Wall Street. Yet, some investors are only getting more skittish as the market continues to run higher. They’re worried that stocks are priced for perfection , with the S & P 500 currently trading at a 12-month forward multiple of 22, making it vulnerable to some sort of setback. “I think this is an area to watch for a pause,” Warren Pies, co-founder at 3Fourteen Research, told CNBC’s ” Closing Bell ” on Tuesday. “You have to recognize that trees don’t grow to the sky. These things pause.” .SPX YTD mountain SPX year to date Pies, who recently moved to market weight from overweight, said the macroeconomic picture continues to trouble him, including cracks in the labor market that he worries traders aren’t giving enough credence. CPI, while softer than expected, nevertheless showed a reacceleration, he noted on social media. “If you’re a client of ours and you follow our advice, I think you want to just neutralize your overweight, and let the market come to you,” Pies said. Some strategists on Wall Street think the many divergences within the market — between large caps and small caps, or value versus growth — make parts of the asset universe ripe for a comeback if the interest rate outlook improves, while limiting upside for others. On Wednesday, for example, the S & P 500 rose 0.2%, while the small-cap Russell 2000 advanced 0.9%. Health care, the worst-performing sector this year, led the index. Apple rose, while Nvidia slid. Yet, the top-heavy nature of the market raises other concerns. “Magnificent Seven” stocks, which account for roughly one-third of the S & P 500 in terms of market cap, are trading at a premium to the rest of the market, even as the equal-weighted benchmark remains off its record. Goldman Sachs pointed out on Monday that the median stock in the benchmark remains more than 10% off its recent highs. “This is consistent with our view that these [Mag 7 stocks] are mania candidates,” read a Wednesday note from David Abramson, chief U.S. strategist at Alpine Macro. “But with valuations already high, this could play out as a mania-like overshoot, ‘catch up’ of laggards, or a burst bubble.”
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