There is more than enough focus on Wall Street about what the Fed will do next, and Friday’s weak nonfarm payrolls report will add to expectations for a rate cut. But maybe there is not enough planning among investors about what they should do to preserve the hefty gains embedded in market portfolios since the April low gave way to a new S&P 500 record. A rate cut is typically seen as a good thing for stocks, but a weakening labor market is also a sign that broader trouble for the economy could be ahead.
Global equities are at all-time highs, 401(k) and IRA millionaire account numbers have surged to their own record, flows into equity ETFs are picking up, and investor sentiment data is getting “a little hotter,” according to Strategas Securities’ technical strategist Todd Sohn, all signs that there could be a tipping point ahead for the market where bullishness becomes its own sign of overconfidence. But in Sohn’s view, we’re not there yet. September has had some rocky trading days already, and its long-term track record as a market month going back decades is not good, but “the real lull,” if it comes, will happen further into Q4, he said.
“That’s when people can get hit with a speed bump like April, maybe not as quick or as big of a drawdown,” Sohn shared on this week’s “ETF Edge.” But he stressed that there are “no signs of massive risk yet.”
The market initially headed higher on Friday to yet another new record as traders bet a rate cut is coming, but then gave up those gains.
Fed chair Jerome Powell has himself signaled that a rate cut may be ahead, but that isn’t really signaling anything the market didn’t already know, and according to Bryant VanCronkhite, Allspring Global Investments’ senior portfolio manager and co-head of its special global equity team — who joined Sohn on “ETF Edge” — the market may be overpricing the odds of a Fed rate cut even with the weakening labor market. Inflation, with core CPI at 3.1% in July, remains “safely above target,” he said — a reference to the Fed’s longstanding policy approach of aiming for 2% inflation — and the uncertainty related to tariff impact on prices throughout the economy gives the Fed more reason to wait for more data before committing to a big change in policy.
That’s a long way of saying that given the wiggle room still possible within the Fed’s timing for a cut, and the uncertain economic outlook tied to the trade war, VanCronkhite and Sohn both say it is a good time for investors to take a look at defensive options with the stock market that may be underrepresented in their portfolios. It doesn’t mean a major change in how an overall portfolio is constructed, but some tweaks on the edges to insulate overall returns from any damage that could be in the cards for the recent equity winners. They broke down that analysis into a few key points for investors to consider.
1. Nothing new here, but your portfolio still likely has too much tech
For years, investors have been warned that mega-cap tech stocks have become too dominant in the cap-weighted S&P 500, and that problem has not gone away, with Sohn noting that the weighting of the top eight mega-cap stocks is now close to 40% of the index (in an index of 500 stocks). The tech sector, as a whole, is currently 31% of the index as measured by the SPDR S&P 500 ETF.
Nvidia, the biggest of them all, was lower on Friday, its sixth losing day out of the last seven, and on track for its worst week since April, and fourth-consecutive losing week, according to CNBC data.
Sohn says the first step in dealing with tech concentration risk is for investors to make sure they don’t have a core stock market index fund in addition to large-cap growth and tech stock growth funds, which in the end, are all more or less replicating the same exposure and risk profile. If there is any tilt in the future to value stocks, that composition of a portfolio will exacerbate the pain for investors.
It should be said, this concentration warning has been issued for years and the mega-cap, tech-led stock market has mostly continued up and to the right. Nevertheless, it makes sense to evaluate a portfolio’s overall concentration risk with the prospect of major changes in rate policy and overall economic conditions ahead. So, where to look?
2. Value and defensive stocks have been left behind, and that leaves opportunity ahead
Sohn and VanCronkhite both say that heading into 2026 it makes sense for investors to reposition ahead of any tilt in the market cycle towards value. “Maybe not the bulk of a portfolio,” Sohn said, but from his technical lens on the market, looking at the stocks and sectors that have not participated in the recent gains, corners of the stock market that have, in effect, been in their own bear market or stuck in a…
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