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Hey savvy investors! The market rally seems to have hit… a bit of a pause. 

After powering to new record highs, the S&P 500 has gone mostly nowhere over the past week. Flat. Sideways. Like it’s waiting for something to happen. And a lot of my friends are asking the same thing — is this a pause before we break out even higher, or a sign that we’re at going over the top of the mountain and should take the opportunity to trim some of those juicy unrealised gains?

Now, I know most of you are based in Singapore — so why focus on the US? Like it or not, the US market sets the tone for global investing. It drives capital flows, risk sentiment, and even how our own Straits Times Index or STI behaves. The STI is also hitting records, and could be subject to similar drivers going forward. So when the world’s largest market starts pausing, it’s worth paying attention — because what happens there doesn’t stay there.

In this mid-week post, I want to unpack some of the reasons for the pause, and what it will take to move out of the current plateau, and most importantly — what it means for long-term investors like us.

But before we dive in, let me remind you that this post is for informational purposes only and not financial advice. Always do your own research and consult a licensed financial adviser before making any investment decisions. I own some of the REITs and shares discussed, but what works for me might not work for you.

Let’s dive in.

Valuations Are Stretching… Again

One big reason for this recent pause in the markets could be valuations.

The S&P 500 has performed so well over the past 3 years and that has benefited many investors, including myself. But it also means that it is currently trading at around 22 times forward earnings, while the long-run average is closer to 17 or 18 times. That’s a significant premium — and it means investors are paying much more today for each dollar of expected future profit.

Even more striking is the Shiller PE ratio, which is now above 34. Historically, the long-term average for the Shiller PE is around 16 to 17 — so we’re at roughly double that level.

Now, for those unfamiliar: the Shiller PE, also called the CAPE ratio, stands for Cyclically Adjusted Price-to-Earnings. It looks at the market’s price relative to average earnings over the past 10 years — adjusted for inflation. This smooths out temporary spikes or drops in profits, giving us a more “normalized” picture of valuation.

Naturally, this raises the question: Is the market too expensive right now?

Some investors certainly think so — they argue that with so much good news already priced in, the room for upside is getting tight. And in fact, that’s why earnings season is being watched so closely. At these levels, even a small earnings miss can trigger big sell-offs.

But there’s another camp of investors who say: “Yes, valuations are high — but it’s different this time.” The difference? Artificial Intelligence or AI.

The bullish view is that AI isn’t just another hype cycle. It’s expected to boost productivity, streamline operations, and open up entirely new markets — potentially driving faster earnings growth than we’ve seen in years. In fact, analysts are forecasting around 14% earnings growth for the S&P 500 in 2026, largely based on this optimism.

So from that perspective, some say the current valuations aren’t too demanding — they’re just pricing in a future that’s coming faster than usual.

The question you should ask yourself is which camp are you in? 

Other Reasons for the Market Pause

While valuations may be one reason why markets are hesitating, they aren’t the only factor at play.

Another key reason could be investor positioning ahead of earnings season. Many large funds have already ridden a strong rally — and now, they’re holding back to see whether the upcoming results justify further upside. In other words, it’s a classic “wait and see” phase.

At the same time, economic uncertainty hasn’t gone away. The US economy is still strong, especially consumer spending, but risks remain: tariffs are hanging in the background – 1st August is just round the corner; and with inflation threatening the Fed is still cautious about cutting rates.

So this pause may not necessarily be a bad sign — it might just be the market catching its breath, taking stock of what’s ahead. Or is it?

Earnings Season Will Decide Everything?

At this point, whether you think valuations are overstretched or that the pause is just healthy digestion of gains — one thing I truly believe is that the current earnings season will make or break the next move.

Because my honest view is that valuations can stay high for a while, especially when there’s excitement over themes like AI. But with optimism priced in, the corporate earnings would need to catch up to justify the valuations. We have seen this so many times over the past few years – when earnings of mega caps like Nvidia or Microsoft missed their estimates, investors were punished. 

In addition, I’ve an even more worrying observation this earnings season – the punishment came even when companies had a strong report! What exactly is happening? Big banks have posted record-breaking trading revenues, and companies like Netflix and PepsiCo have delivered solid results, supported by a surprisingly resilient US consumer.

But here’s the catch — investors don’t seem impressed.

Financials crushed earnings expectations, yet their share prices barely budged — and in some cases, even fell. Netflix beat on every major metric, raised its full-year forecast… and still dropped over 5% after results. Even Goldman Sachs, which reported its highest-ever equity trading revenue, only saw its stock move up a mere fraction.

That’s telling us something.

It’s not that the results are bad — it’s that the bar has been set very high. At current valuations, strong results are already priced in. So even when a company meets market expectations, it is not enough! I think we need to be cautious when the market is this greedy. 

And this pressure isn’t just about individual companies. It affects the broader market sentiment. Because if too many companies disappoint — or if forward guidance shows cracks — that could spark a broader revaluation.

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The Dividend Uncle’s Take

So what do I make of all this?

To me, this looks like a market that’s holding its breath. Valuations are stretched — no doubt about that — but earnings so far haven’t been disastrous either. The big question is: can the results in the coming weeks justify the price levels we’re seeing?

And that’s why I’m not making big portfolio moves right now. In my previous post, I have already mentioned that I’m tilting my portfolio to prepare for potential volatility — not out of fear, but out of caution and discipline. Do check it out if you’re interested. 

Now, if you feel US large caps are starting to look expensive, that doesn’t mean you should stay out of the markets altogether. There are other options worth considering at this point in time. For instance, small caps globally — especially those that haven’t run up as much — may start to shine if earnings broaden out.

SGD-denominated dividend stocks like NetLink or Sheng Siong continue to be my steady defensive plays — especially with Singapore’s relative stability as a safe haven. How about Singapore REITs? They still offer decent value relative to global benchmarks, with local interest rates already trending lower.

How about globally diversified ETFs with call-option strategies to generate dividend yields as high as 15%? JEPG and the US-focused JEPI listed in LSE are good candidates to consider.

If you’re really cautious, keeping some dry powder in short-duration SGD funds or money market instruments is also not a bad idea. This is not to time the market, but to stay flexible. Because if volatility returns, we would want to be ready to deploy — not panic.

Remember, we don’t need to predict where the S&P 500 is headed next week. What we do need is a grounded portfolio that can hold up — whether the rally continues or the market takes a breather.

As always, stay steady, stay diversified — and don’t chase the headlines.

Remember there is always a value stock somewhere. And if you’re looking for ideas on where value still exists, especially in Singapore, I’ll be covering the dividend stocks and REITs I’ve bought or eyeing in the next few posts. So stay tuned!