Time to Lighten Up on Stocks

Beginning a month ago, the bull market in stocks began to show some hesitancy, even perhaps stalling out after a long post-pandemic surge that took stock prices far higher.
After many months without a correction of over 1 percent or 2 percent, the most popular technology stocks are finally showing signs of fatigue. The closely watched so-called Magnificent Seven— Alphabet, Amazon, Apple, Meta Platforms (formerly Facebook), Microsoft, Nvidia, and Tesla—appear to have reached a topping out point:
Diversification is the strategy of spreading your investments across various asset classes so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.
This ratio fluctuates over time because the value of the stock market can be volatile; but GDP tends to grow more predictably and is less volatile. The current ratio of 202 percent is approximately 63.27 percent (about 2.0 standard deviations) above the historical trend line, suggesting that the stock market is strongly overvalued relative to GDP.
A low ratio could imply the stock is undervalued, while a ratio that is higher than average could indicate that the stock is overvalued. One of the downsides of the P/S ratio is that it doesn’t consider whether the company makes any earnings or whether it will ever make earnings. So, it must be one measurement among several, not standalone (see S&P 500 Index chart below).
A good PEG ratio is one that has a value lower than 1.0. PEG ratios higher than 1.0 are generally considered unfavorable, suggesting a stock is overvalued. Currently, the S&P 500 has a PEG ratio of 1.56.