Stocks at record highs – but investors may be jumping the gun

Global equities have pushed to fresh records, driven by softer US inflation data and growing confidence that the Federal Reserve will cut interest rates next month.

Yet Nigel Green, CEO of global financial advisory giant deVere Group, warns that the market may be overstating the strength and sustainability of this August surge.

“We’ve had some seasonal buying in the early part of August, but I think people are too quick to assume this is the start of a sustained summer rally,” he says.

“A few strong sessions can be misleading, and it’s important to separate short-term momentum from a durable trend.”

On Tuesday, the S&P 500 climbed 1.1% to 6,445.76 and the Nasdaq Composite added 1.4% to 21,681.90 – both closing at record highs. The Dow Jones Industrial Average gained 483 points, or 1.1%, to end at 44,458.61.

Small-cap stocks led the charge, with the Russell 2000 Index soaring nearly 3% as traders positioned for lower borrowing costs.

The rally followed an inflation reading that came in below expectations, easing concerns that recent tariffs were accelerating consumer prices.

Futures markets now place a 94% probability on a September rate cut, with some traders betting on a 50 basis-point move after US Treasury Secretary Scott Bessent urged the Fed to consider a more aggressive reduction.

But Nigel Green says the optimism is in danger of detaching from market fundamentals. “August trading often comes with thinner volumes and seasonal shifts in investor positioning,” he notes.

“While those forces can lift prices, they don’t necessarily point to a deep, broad-based upswing. The current move feels driven more by positioning and sentiment than by an across-the-board improvement in earnings or economic resilience.”

Earnings announcements on Tuesday underlined that point. After markets closed, Cava shares plunged more than 22% after the restaurant chain’s quarterly revenue growth fell short and it cut its full-year forecast.

“These are not the hallmarks of a uniformly bullish environment,” notes the deVere CEO. “In a truly powerful rally, you see consistent beats and raised guidance across sectors. Right now, the picture is uneven.”

He also cautions against assuming that central bank policy will act as a tailwind without interruption. “A rate cut looks likely, but monetary policy isn’t a magic switch that guarantees higher equity prices,” he says.

“If incoming data between now and September shifts materially, or if the Fed signals a more cautious stance at Jackson Hole, expectations could reverse quickly.”

Thursday’s US producer price index will be another key input ahead of the Fed’s 21-23 August Jackson Hole meeting.

Nigel Green warns that a single upside surprise could dampen the current enthusiasm. “Investors need to consider the risk that one strong inflation print, or a change in tone from policymakers, will unwind much of the recent rally.”

The broader economic backdrop remains mixed. While the US economy is holding up better than many had predicted earlier this year, Europe’s recovery is still patchy and Asia’s markets remain volatile. US-China trade negotiations continue in a tense climate, with technology and semiconductor policy still flashpoints.

“This global context doesn’t justify the idea that markets are entering an effortless upward phase,” Nigel Green says.

“There are still clear geopolitical and macroeconomic challenges. The recent strength in equities could prove fragile if any of these factors flare up.”

For investors, he says, the priority should be discipline over exuberance. “It’s tempting to chase record highs, but prudent positioning means recognising when price action is being driven by seasonal patterns or speculative expectations rather than underlying growth. The risk of getting caught on the wrong side of a sharp reversal is very real.”

As markets push higher, Nigel Green’s message is to stay grounded.

“Participating in the upside is fine – but do it with a realistic appraisal of what’s driving prices and how quickly sentiment can turn. August has a history of lulling investors into a sense of security before reality reasserts itself. The key is to manage risk before the market does it for you.”