Do These Markets Feel ‘Healthy’ to You? Some Experts Say to Back Off Stocks

Many investors have taken a glass-half-full view of markets lately. But others see the glass as cracked.

On Monday, as stocks dropped to start a busy week, it seemed the latter group had a firmer hold on the microphone. The VIX, Wall Street’s so-called fear index, was recently around 23, creeping further into the territory associated with worry. CNN’s worry measure recently pointed toward “Extreme Fear.”

Veteran bond investor Jeffrey Gundlach now says almost all financial assets look overvalued—and he observes atypical relationships across asset classes. Private credit defaults are being compared to cockroaches-in-hiding, and AI-stock valuations to the dotcom bubble—even though Nvidia’s (NVDA) earnings, which could give stocks a shot in the arm, are just days away.

Some investors are cutting their equity exposure. A Deutsche Bank report showed that discretionary investors were underweight stocks again, moving to the bottom of the positioning range that has been in place since the early 2025 tariff tantrum. Saudi Arabia’s sovereign wealth fund in the third quarter cut its positions in U.S. stocks, according to the Financial Times.

The U.S. stock market feels the “least healthy” it has been in decades, across classic valuation metrics including price-to-earnings and the CAPE ratios, Gundlach said in the most recent episode of Bloomberg’s Odd Lots podcast. Gundlach said investors should eschew the 60/40 portfolio and have no more than 40% in equities, with most of that outside of the U.S.; 25% in bonds; 15% in gold (prior to the precious metal’s rally, he said 25% was ideal); and the rest in cash.

This market, per Gundlach, is unlike those of the past. For example, he said, short- and long-term treasury rates have historically declined when the Fed moves to cut its benchmark rate, but outside of the two-year bonds, yields are higher than they were before the first cut. Meanwhile, he said, the U.S. dollar has climbed as stocks declined in the past 12 S&P 500 corrections since 2000, but in March and April the dollar swooned alongside equity markets.

“What’s the ‘flight to quality’ asset, and what isn’t, seems to have changed,” Gundlach said.

Not everyone is bearish. Fundstrat Global, the financial services firm led by Tom Lee, attributes the choppiness in markets to self-fulfilling narratives driven by media outlets, and neither the shop’s head of data science nor the head of technical strategy agree that there is an AI bubble. A December catch-up rally could be possible, they said.

BCA’s chief U.S. investment strategist Doug Peta is on the fence, but said the “potency of the AI narrative is making this one look increasingly like the dotcom boom.” Still, he said, there are worrying signals: That the S&P 500’s earnings growth laggards—companies that sell discretionary goods, appliances, for example are in economically exposed and consumer-facing subindustries could be a “sign that the expansion is less robust than widely perceived,” he said.

“It does not inspire confidence when the most cyclical companies’ earnings growth lags the overall market’s by 20 percentage points,” Peta wrote in a report on Monday that recalled the S&P 500’s last closing high, on Oct. 28.

“We don’t yet know how much longer the current bull market will last,” he said.” or if it already ended” that day.