To The Moon

If we were to comprehend Howard Marks memo to his clients, I think we might want to look at these questions before we can actually see how we can adjust our portfolio.

In this article, I will also be sharing on how we would structured scenario map for markets over the next 6–12 months, with probability weights and sector opportunities.

Are current markets “irrational” at these levels?

• Valuations are elevated relative to historical norms (especially in tech/AI), but not across the board. Many cyclical and international markets are still fairly priced.

• What feels “irrational” often reflects strong liquidity, resilient earnings, and investor positioning rather than pure euphoria. So far, earnings momentum and macro stability are supporting these levels.

Will we see another new high?

• Near-term pullbacks are normal (we’ve seen profit-taking on red days). But structurally, if earnings remain solid and rates ease into 2026, new highs are still probable.

• Risks that could break the uptrend: stickier inflation, central banks staying hawkish, or a geopolitical shock.

Are there still opportunities for new investors?

Yes, but selective:

• Broad indexes may have stretched valuations, but opportunities exist in sectors like industrials (AI infrastructure build-out), energy transition, defense, and parts of healthcare.

• International diversification (e.g., Japan, parts of EM) still offers relative value.

• Alternatives like gold and high-grade bonds are providing hedging benefits again.

• For equities: instead of waiting for “perfect” entry levels, scaling in gradually (dollar-cost averaging, structured options) can help manage timing risk.

If we examine these three questions, in short, I would say market are not fully irrational, new highs are possible, and opportunities exist — but this is more of a stock-picker’s market than a broad “everything goes up” rally.

In the next section, I would like to share how we might structured scenario map for markets over the next 6–12 months, with probability weights and sector opportunities under each path:

Market Scenario Paths

Bull Case (≈30% probability)

Drivers:

• Inflation keeps easing → central banks cut rates faster than expected.

• Earnings growth accelerates, led by AI adoption + consumer resilience.

• Geopolitics remain contained.

Market outcome: New highs across U.S. indexes (S&P 500 > 5,800; NASDAQ pushes +15–20%). $S&P 500(.SPX)$

Sectors to watch:

• Tech/AI infrastructure: semiconductors, cloud, networking, cybersecurity.

• Industrials: automation, robotics, AI-driven manufacturing.

• Consumer discretionary: luxury, travel, e-commerce winners.

• Financials: benefit from loan growth + steepening yield curve.

Here are some ETFs like $ISHARES FUTURE AI & TECH ETF(ARTY)$ $VanEck Semiconductor ETF(SMH)$ that investors might want to consider for the bullish scenarios

Thematic AI Exposure:

• Thematic AI ETFs (e.g., ARTY, CHAT, IVES, SOXQ/SMH): These funds offer a more concentrated bet on the Artificial Intelligence revolution, targeting companies in infrastructure, software, and semiconductors. Note: These are generally more volatile and have higher expense ratios.

Base Case (≈50% probability)

Drivers:

• Growth moderates, but no recession.

• Inflation sticky in pockets (services, energy) → slower rate cuts.

• Earnings meet expectations, but not much upside surprise.

Market outcome: Range-bound to modestly higher. S&P 500 fluctuates 5,300–5,700; rotation below surface.

Sectors to watch:

• Healthcare & biotech: defensive with selective growth catalysts.

• Energy: oil/gas + renewables, supported by supply constraints + transition spending.

• Utilities & infrastructure: steady cash flow + AI-driven power demand.

• Quality large caps: strong balance sheets, dividend growers.

For base scenarios, investors can consider these two ETFs like $Invesco QQQ(QQQ)$ and $Vanguard Mega Cap Growth ETF(MGK)$

Broad Mega-Cap Growth/Tech:

• Invesco QQQ Trust (QQQ): Tracks the Nasdaq-100, which is heavily concentrated in the "Magnificent Seven" and other large-cap growth/tech companies driving the current bull run.

• Vanguard Mega Cap Growth ETF (MGK): A well-diversified, low-cost option for large-cap growth exposure, which is strongly benefiting from the AI boom.

Bear Case (≈20% probability)

Drivers:

• Inflation re-accelerates (oil/geopolitical shock).

• Rates stay “higher for longer” → credit stress, weaker consumer.

• Geopolitical escalation (Taiwan, Middle East, elections uncertainty).

Market outcome: Correction of 15–25% (S&P 500 falls back to ~4,300–4,600).

Sectors to watch (defensive/hedges):

• Gold & precious metals: hedge vs inflation + uncertainty.

• Staples & healthcare: defensive cash flow plays.

• Utilities: relative safe haven if rates stabilize.

• High-quality bonds: once yields peak, duration hedge kicks in.

Here are some ETFs to consider for "Defined Outcome" / Buffer ETFs (For Downside Protection)

These are complex, options-based products designed to limit losses over a specific period in exchange for capping potential gains. They are specifically suited for an investor who wants to participate in a bull market but fears a sharp, irrational correction.

S&P 500 Buffer ETFs (e.g., MMAX, DMAX, SMAX, IVVMA):

• They use options to offer a "buffer" (e.g., protecting against the first 10-20% of losses) up to a "cap" (e.g., limiting upside to 7-10%) over a defined period (e.g., one year).

• Caveat: You must hold them for the entire outcome period to realize the advertised protection/cap. $iShares Large Cap Max Buffer Sep ETF(SMAX)$

Innovator Equity Defined Protection ETFs (e.g., ZJAN, ZFEB): These aim for 100% downside protection to a cap over a specific period, making them the most conservative of the "defined outcome" space.

Final Note

Base case dominates (sideways/up bias), but bull and bear risks are both live.

• Best strategy for new capital: barbell approach — combine growth exposure (AI/industrials) with defensives (healthcare, gold, quality bonds).

• Tactically, scaling in (phased entries or structured option spreads) lowers timing risk.

Summary

The current high-level market environment, despite occasional downturns, is being debated regarding its rationality. Some experts see parallels to the dot-com bubble due to elevated valuations, especially in mega-cap tech stocks driving the AI infrastructure buildout.

However, others argue that current high valuations are supported by strong revenue bases, proven business models, and significant cash flow, unlike the late 1990s. Forward price-to-earnings (P/E) ratios, for instance, are high but still below historical bubble peaks.

Looking ahead, new market highs, particularly for the S&P 500, are anticipated into 2026 by several financial institutions. This bullish outlook is generally based on expected corporate earnings acceleration (projected double-digit growth) and a potential favorable interest rate environment with expected rate cuts by the Federal Reserve.

For investors looking to enter, opportunities still exist. Analysts suggest focusing on companies positioned for long-term growth driven by themes like Artificial Intelligence (AI) (e.g., in inference/data centers) and exploring sectors that are currently out of favor or undervalued compared to the broad market, such as some international or non-mega-cap stocks. Volatility is expected, making a strategic, diversified approach crucial.

Appreciate if you could share your thoughts in the comment section whether you think market would continue to create new highs while not cancelling any possibility of irrational market behavior.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.