Some strategists are warning that U.S. equity valuations are starting to overheat—only this time, it's not just Big Tech fueling the run-up.
While the Magnificent Seven—Apple, Amazon, Microsoft, Meta, Alphabet, Nvidia, and Tesla—remain prominent players, a broader group of large-cap names is now driving market momentum. Pictet Asset Management strategist Arun Sai refers to this cohort as the "Terrific 20," which includes companies spanning sectors such as financials, industrials, energy, consumer staples, and legacy tech.
Names like Broadcom, Walmart, JPMorgan, Berkshire Hathaway, Visa, and GE Aerospace have gained significant weight in the MSCI US Index, accounting for about 17% of the benchmark, compared to 33% for the Mag Seven. While broader leadership can be constructive for market health, the source of that leadership matters.
In this case, price appreciation is largely being driven by multiple expansion rather than earnings growth—a trend that raises red flags for several strategists.
“Broader participation is a good thing when it’s supported by fundamentals,” Sai wrote in a recent note. “But when valuations rise across the board without earnings support, it undermines the idea that only a few exceptional companies are expensive.”
Sai compares the current environment to the “Nifty Fifty” bubble of the 1960s—a time when a group of large, well-known U.S. companies was believed to be so strong that investors ignored their inflated valuations.
Richard Bernstein, CEO of Richard Bernstein Advisors and former chief investment strategist at Merrill Lynch, sees echoes of the dot-com bubble as well. Speaking in June and again this week, he pointed to investors’ tunnel vision on emerging technologies—particularly artificial intelligence—as a sign of unsustainable enthusiasm.
Even though more companies are participating in the rally, Bernstein emphasized that the overall market remains concentrated and is showing signs of speculative excess. He pointed to increased trading in leveraged ETFs, zero-day options, and low-priced stocks as further evidence that market behavior is becoming detached from fundamentals.
“If you’re a trader, you should take a step back and evaluate whether the momentum is supported by earnings or just sentiment,” Bernstein told Business Insider. “But for patient long-term investors, this kind of reckless environment tends to leave a lot of value on the table—just like it did after 2000.”
While few on Wall Street are calling for an imminent crash, more strategists are quietly advising caution.
Ulrike Hoffmann-Burchardi, CIO Americas and global head of equities at UBS Global Wealth Management, advised in a recent client note that market participants should expect choppier price action in the coming weeks. “Capital preservation or phased-in allocations may be prudent in the face of near-term volatility,” she wrote.
Valuations on the Terrific 20 have surpassed their early-2025 levels and are now higher than any time in the past decade. That contrasts with the Mag Seven, whose forward P/E ratios, while elevated from their April lows, are still below mid-2024, mid-2023, and even 2020 levels.
The widening breadth of participation—often seen as a healthy sign—is increasingly being questioned as valuation multiples stretch across a broader range of sectors. This poses a challenge for RIAs and portfolio managers trying to justify new allocations at current prices.
For wealth advisors, the key is to scrutinize what’s driving client portfolios higher. If performance is coming primarily from multiple expansion, especially in sectors not typically associated with high-growth narratives, it may be time to reevaluate positioning.
At the same time, it’s important not to dismiss the entire rally as unsustainable. Companies like Meta and Microsoft recently posted strong earnings results and issued upbeat guidance—demonstrating that certain players in the AI trade are still delivering on their growth promises.
Still, advisors should prepare clients for increased volatility and the possibility of short-term dislocations, even in high-quality names. For clients with meaningful exposure to U.S. large-cap equities, this may be a good time to consider rebalancing, implementing downside protection, or selectively rotating into areas where valuations are still reasonable relative to growth expectations.
Ultimately, the shift from a narrow rally to broader participation is a welcome development—but only if supported by fundamentals. In today’s environment, being selective is critical. Wealth managers who can distinguish between sustainable growth and speculative momentum will be better positioned to help clients navigate the next phase of the market cycle.
