It’s time to take profits, trim the sails, play with house money or prune your portfolio. Financial markets – the stock market and bitcoin – have had a spectacular run of late. The S & P 500 is up more than 27% in 2024, while the Nasdaq Composite has soared 31%. Bitcoin also topped the $100,000 milestone for the first time last week, and it has more than doubled this year. By many measures, stocks are richly valued. However, that presumed overvaluation is being offset, at least partially, by the recent decline in interest rates. .SPX YTD mountain S & P 500 in 2024 Still, the forward price-earnings ratio on the S & P 500 is about 23-times 2025 profits, while the trailing PE ratio is 28. Both are on the very high end of historic ranges. Of course, valuations are imprecise when used as market-timing tools. Having said that, price-earnings ratios are not the only indicator of market froth. Stock market capitalization, as a percent of gross domestic product, is at a historic high. Equity valuations are topping the highs seen in all prior bull market cycles. Similarly, U.S. stock market capitalization accounts for roughly 60% of the value of the world’s equity market values, depending on whose measure you use. Still, in every respect, the U.S. has never been so dominant. Investors growing complacent The U.S. is home to trillion-dollar companies. Further, domestic markets have easily outperformed global markets for the last two years. That outperformance is reflected in renewed complacency among investors who believe the good times will carry on well into 2025. The CBOE Volatility Index, or so-called fear gauge, is ample evidence of that. The VIX slipped below 13 on Friday, indicating very little fear among investors. This can be a contrarian indicator that shows up just as a meaningful correction is upon us. It’s true that there is justification for U.S. market dominance. The U.S. remains a world beater in technology. The nation’s economy is growing faster with less inflation than almost any major economy, and it’s enjoying a productivity boom not we’ve witnessed for decades. But there are signs of irrational exuberance even beyond the traditional places in which to look. Bitcoin, having recently eclipsed $100,000 per coin, has gone absolutely parabolic. It’s a trading pattern that can end in a spectacular crash. MicroStrategy chairman Michael Saylor’s prediction for the flagship crypto to reach $13 million by 2045 is ominously reminiscent of Jim Glassman and Kevin Hassett’s 1999 book “Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market.” Just as Glassman, Hassett and others predicted an imminent surge in stocks, they crashed in 2000 and cratered again in 2008. Managing risk in exuberant times I remain convinced that cryptocurrencies — and bitcoin more specifically — is the single largest market mania in the history of the world. And I say that after a presumed artwork — a banana taped to a wall — sold for the princely sum of $6.2 million and was subsequently eaten by its owner . Art is said to be in the eye of the beholder and now, the belly, as well. In past historic cycles, the Tower of Babel -like reach for the sky has served as the ultimate sign of a market top. Of course, it’s never wise for long-term investors to simply sell everything and go to cash. Market timing is a risky game and often a fool’s errand. Still, rebalancing one’s portfolio so that it’s not grossly overweight on the market’s biggest winners is prudent. Looking for opportunities in beaten-down assets also makes sense at this juncture, given the wide gap among winners and losers around the world. I would also never recommend dumping all your bitcoin, having been wrong about its price since its inception. However, I would caution that — as in any bubble — the early investors make out like bandits and the latecomers are left holding the bag. The new year will bring immense uncertainty in terms of fiscal and monetary policies, as well as for trade and immigration. All of these factors may have unintended economic and financial market consequences. Geopolitical risk appears to be rising, and the gap between rich and poor has rarely been wider. The combination of these factors could prove combustible and lead to less-than-ideal outcomes on Wall Street, Main Street and in Washington. I would caution against complacency and recommend vigilance. As the nation appears to be in one form of transition or another, transitioning to a position of safety may not just be prudent but also quite wise. Warren Buffett’s Berkshire Hathaway is sitting on the biggest cash pile it has ever amassed at $325.2 billion. If prudence is good enough for the Oracle of Omaha, it should be good enough for you. — CNBC contributor Ron Insana is CEO of iFi.AI, an artificial intelligence fintech firm.
Never mind the runaway rally. It’s time to take some chips off the table