Exuberance is back in markets. A frenzy over artificial-intelligence technology has stoked a monster run in Nvidia shares. Major stocks indexes are clinching repeated records. And even bitcoin is threatening to set a new high.
In times like these, financial advisers caution clients not to let a fear of missing out drive their decision-making. They encourage them to diversify their holdings and stick with dollar-cost averaging -- investing a fixed amount of money at regular intervals -- because attempts to predict a market top or bottom rarely pay off.
Nonetheless, stock-market records often happen in clusters, they say, and this rally appears to be missing some of the classic ingredients of a stock-market bubble. That might suggest the market has more room to run.
With euphoria running high, we talked to four everyday investors about how they are adjusting their playbooks.
Sitting in cash is tempting but could be costly
Jordan Buchanan, a 35-year-old Navy officer stationed in Virginia Beach, Va., opted not to renew his certificate of deposit when it matured in January, even though he could have gotten a 5% yield. Instead, he plopped $10,000 into Nvidia, Super Micro Computer, Amazon.com and Microsoft, among other stocks.
His portfolio is up 17% this year, outpacing the tech-heavy Nasdaq Composite's 8.4% advance.
Buchanan says he expects growth stocks will jump even higher once the Federal Reserve begins cutting interest rates, whereas cash will likely start to lose its appeal. Technology and other growth stocks are particularly sensitive to changes in interest rates because they are often valued based on expectations of growth far into the future.
"At the time I felt safe, but after seeing that things were working out a lot better in stocks, I just decided to dump it in there," Buchanan says. "While it has been good so far this year, I don't think we've really ignited the fire that's gonna take place once they start dropping interest rates."
Stocks have historically outpaced other assets over time. The S&P 500 has returned more than 10% annually, including dividends, according to data from Ned Davis Research going back 100 years. In comparison, corporate bonds and Treasurys have advanced 5.5% and 5.1%, respectively, and gold has added 4.7%.
Buchanan's optimism is shared by others. Charles Schwab says bullishness among everyday investors is at the highest level since its quarterly survey launched in 2021. More than half of respondents say they are bullish on the U.S. stock market, up from 32% in the fourth quarter of last year.
Bets that the economy has staved off a recession and the Fed will soon pivot to cutting rates are fueling the euphoria. The S&P 500 has climbed 7.7% to start 2024 and has notched 15 closing records in the process. Nvidia shares have led the way, up 66% after more than tripling last year.
Yet neither looks particularly expensive. Nvidia trades at 31 times its expected earnings over the next 12 months, according to FactSet. Its two-year average is 38 times. The S&P 500's multiple is about 21, below its recent peak of 24 hit in September 2020.
Don't be too greedy
Zachary Esters, a 33-year-old recording artist and reality-TV cameraman in Nashville, Tenn., says he put about one-fifth of his portfolio into stocks he considers undervalued when the latest leg of the rally began in October.
Among his recent stock purchases were Arbor Realty Trust and Barrick Gold. The real-estate lender's shares have fallen 15% this year and offer a 13% dividend yield, while the gold miner's stock has dropped 15% and carries a 2.7% yield.
"To be completely 100% risk-on in every portfolio is a bad mistake for any investor because that's the same thing as saying that 'I am willing to lose everything' and that is a greedy perspective," Esters says.
Esters also owns shares of Alphabet, Adobe and the SPDR S&P 500 ETF but says he expects to buy more value stocks over the next year. Value stocks are typically considered those that trade at a low multiple of their book value, or net worth. They often include shares of banks, oil companies and industrial conglomerates.
Although Nvidia and Tesla top the list of the most popular stocks among individual investors, there are signs that some are looking beyond the "Magnificent Seven" group of big tech stocks.
The share of Magnificent Seven purchases as a percentage of total retail inflows has declined to 28% recently, from nearly 45% early last year, VandaTrack data show.
But don't be afraid to have fun
Richard Stofan, a 33-year-old full-time day trader in Channahon, Ill., says he is beginning to dabble in more speculative stocks.
This year, he has reallocated about one-third of his tech-stock portfolio -- which includes the SPDR S&P 500 ETF, Nvidia, Amazon.com, Apple and Alphabet.
He bought shares of the small-cap-focused iShares Russell 2000 exchange-traded fund, SPDR S&P Biotech ETF, Cathie Wood's ARK Innovation ETF, along with Arm Holdings, Palantir, Super Micro Computer and Fortinet.
Near-record prices for bitcoin emboldened him to add to his crypto exposure as well, and he has scooped up shares of crypto miners Riot Platforms, CleanSpark and Marathon Digital Holdings. Bitcoin prices are hovering near $62,000, a level not seen in more than two years.
He isn't the only one crowding into hot stocks. The top 20 most traded securities by everyday investors have been concentrated recently in crypto and semiconductor stocks, along with broad-market ETFs and Magnificent Seven stocks, VandaTrack data show.
Speculative stocks typically outperform when rates are low and investors are hungry for yield. If the Fed delays cutting rates or doesn't reduce them as aggressively as investors hope, the highflying shares might hit a roadblock. Stofan says he isn't too concerned and would use that opportunity to buy the dip and scoop up more shares.
"They're kind of like lottery tickets," Stofan says. "If we were in a bear market, there's no chance I'd be adding to my speculative position."
Protect your capital
Chase Speegle, a 38-year-old full-time day trader in Littleton, Colo., invested in AMC Entertainment Holdings during the meme-stock mania. His gains in June 2021 totaled over $100,000, but he lost it all in a month.
This time around, he has learned to cut his losses quickly to preserve gains. When he is in a winning trade, he tries to add to that position so he can capture the maximum potential. Of course, being in a bull market has made it easier as well.
"Before, we weren't quite in a bull market until a couple months ago," says Speegle, whose portfolio is up 3% this year. "We were getting just a lot of choppy market movements, where you would get wiped out if you weren't proactive. It's been a lot easier to just follow the bullish trends."
Speegle expects stocks to keep hitting new highs. History suggests that might be possible: Since 1957, the S&P 500 has hit about 1,200 record highs, but almost all of those new highs took place during three major clusters, Carson Investment Research data show.
"Everybody loves the upside, everybody hates the downside, but you can't avoid one without the other," says Ayako Yoshioka, senior portfolio manager at Wealth Enhancement Group. "It's really about the kind of roller-coaster ride you're willing to take. How smooth do you want the ride to be?"