U.S. equities have experienced a rotation into formerly oversold names, with investors piling into sectors like health care, consumer discretionary and materials. UnitedHealth rallied after news of a Berkshire Hathaway stake and helped push the Dow to its first 2025 record high. Valuations for the largest market-cap names and the S&P 500 on a market-cap basis are closing in on past peaks. Small-cap valuations are getting elevated, and price-to-earnings ratios on the Russell 2000 and equal-weighted S&P leave limited room for continued rotation. Elevated valuations increase vulnerability to catalysts such as fewer rate cuts, tariffs, labor-market cracks, or persistent inflation, any of which could spark a 5–10% pullback.
Its bounce back highlights the recent move into stocks that had appeared oversold. Indeed, investors have been piling into formerly forlorn sectors, like health care, consumer discretionary and materials. Such a trading strategy, known as a rotation, comes as valuations for both the biggest market cap names and the S&P 500 on a market cap basis are closing in on past highs, according to RBC.
Yet it's not just Big Tech that has gotten expensive, Calvasina says. Even small-cap valuations are "getting elevated," though they are not at the "tip-top" of froth just yet, she notes. Equal-weighted S&P 500 valuations are getting close to peaks on a market cap basis as well. Price-to-earnings ratios on the Russell 2000 and the equal-weighted S&P don't leave "a ton of room" for the rotation trade going forward, she says.
Collection
[
|
...
]