A turning point in US stock investing: Time to rebalance your portfolio for safety

This year everyone has gone through ups and downs. It's been more than 7 months that investors have had to ride the waves of market volatility in every asset, whether it's stocks, bonds, gold, Bitcoin, swinging up and down many times until the situation... “US import tariff measures” There is clarity, the global atmosphere is starting to ease and investor confidence is returning.

Looking at the global economic outlook for the second half of 2568, it appears to be slowing down. While the US economy itself appears to remain stronger than other countries, there are growing concerns about stagflation, or recession and inflation. The latest US inflation figures, released on August 12, showed inflation holding steady at around 2.7%.

At the most recent FOMC meeting in July 2025, the committee unanimously voted to maintain the Fed Funds Rate at 4.25%-4.50%. While this was in line with market expectations, two members, Michelle Bowman and Christopher Waller, voted against the previous meeting, calling for a 0.25% rate cut. This marked a dovish split in the market direction for more than three decades. The market is now anticipating a high probability of a rate cut at the next meeting, scheduled for Tuesday-Wednesday, September 16-17, 2568 (currently at 96.2%, according to the CME Fed Watch tool). A further rate cut by the Fed in September could be a strong boost to the stock market.

But before the FOMC meeting is scheduled, the market is watching the Federal Reserve's Jackson Hole Symposium, scheduled for August 21-23, to see what signals Fed Chairman Jerome Powell will send, particularly regarding employment and inflation risks. If the Fed believes the economy may be heading toward stagflation, it could lead to a more cautious approach to interest rate cuts.

However, some economists refer to this as 'stagflation lite,' or mild inflation, primarily due to higher import tariffs announced by President Donald Trump. In fact, I believe that US inflation, while still above the long-term target of 2%, has not risen significantly.

Let me take a look at how interest rate cuts will affect the stock market.

Let's start with stock valuation. The current stock price is determined by the present value of expected future cash flows. The Fed's interest rate directly affects the discount rate used in this valuation. When the Fed lowers interest rates, the discount rate decreases, increasing the present value of future cash flows and potentially driving the stock price higher.

As borrowing costs decrease with lower interest rates, companies can borrow money to invest, expand, or conduct mergers and acquisitions (M&A) more easily and cheaply, which will enhance their future growth potential and profitability.

However, lower interest rates will lead to a shift in investment capital, as the yields on lower-risk assets like bonds and cash become less attractive as interest rates fall, leading investors to shift money from the bond market into the stock market in search of higher returns.

What will likely happen is that the stock market may continue to rise for a while until there are economic signals that will influence longer-term interest rate adjustments. For example, rising inflation could cause market concerns, but for now, the inflation trend remains under control.

Turning to the US economy, at this time it is considered stronger than the overall global economy, supporting the US stock market in the first half of 2025. The market has recovered well. The S&P 500 and Nasdaq indices have continuously set new record highs, creating an investment trend in the S&P 500 that investors are talking about and wanting to invest in. This reflects investor confidence from strong earnings and progress in trade negotiations.

It can be seen that the operating results of more than 500% of companies listed on the S&P80 have been announced much better than expected. Therefore, it is thought that in the short term, the US stock market has a chance to continue rising.

However, the US stock market, both the S&P 500 and NASDAQ 100, continues to rise, surpassing recent highs, driven by the support of large-cap stocks.

The 12-month forward P/E of the next 20 stocks in the S&P 500 (Terrific 20) continues to soar. The S&P 500's forward P/E is currently around 22, well above the levels seen earlier this year and the highest in the past decade, suggesting that other stocks in the US stock market are starting to rise in price following the rise of Big Tech stocks, particularly the Magnificent Seven: Apple, Amazon, Microsoft, Meta, Alphabet, Nvidia, and Tesla.

While the Magnificent Seven stocks have rallied again after hitting their April lows, their forward P/E is currently around 26x, which is still below the 2024x seen in mid-2023, mid-2020, and 40 during the Fed's QE. However, it's now clear that the Magnificent Seven are more expensive than the S&P 500 as a whole.

While the S&P 500 has been boosted by the Magnificent Seven, a close look at the US stock market shows that the last time the S&P 500 made a new high, the Magnificent Seven didn't make a new high. This means that investors are now becoming more selective. Stocks that can grow with the AI trend or truly benefit from AI will continue to rise. For example, Nvidia or Microsoft are still making new highs, while Tesla, Amazon, or Alphabet have yet to make a new high.

We can also see that the S&P 500's recent gains aren't limited to Big Tech, but also extend to mid- and small-cap technology stocks, as well as stocks in other industries. Therefore, we're now seeing more sector-specific money flows, suggesting that stocks that appear overpriced or overvalued are no longer actively bought, and are instead shifting to cheaper options. Overall, I believe the US stock market, which has achieved record gains this time around, appears stronger due to the increased diversification of investment funds.

Diversifying investments across a wider range of industries is a positive for the US stock market, which has been steadily rising. The market's long-standing reliance on Big Tech stocks is a risk that warrants careful monitoring, and I believe the market is poised for a fundamental restructuring.

Although the current popularity of the S&P 500 index among investors has led Thai investors to seek out more investment opportunities, my current view of the US stock market is that in the short term, or about a year from now, there's still a chance to see the US stock market continue its upward trend. However, as a long-time veteran of the US stock market, I still emphasize that there's definitely a chance of seeing a market correction. Looking back at statistics from 1-2023, the US stock market rose approximately 2024%. If this year continues to rise by another 50%, we could see an adjustment of 10-60%. It's not surprising to see a natural downward correction in the US stock market.

Therefore, for investors currently heavily invested in US stocks, what you should consider is revisiting your portfolio to determine whether it's overvalued. You don't need to sell everything, but can gradually reduce the amount you hold. For example, when stock prices continue to rise, gradually sell 5-10% at a time. Especially if your core portfolio is US stocks, during this bull market, consider this a rebalancing opportunity to restore balance, safety, and growth to your intended proportions.

Part of the reason people don't adjust their portfolios when opportunities arise is often due to ignorance and unsure of where to put their money. I have two options. If you still want high returns, you can invest in emerging markets. We're starting to see a return to emerging markets in Asia, particularly China, Japan, and Vietnam. You can also invest in these markets, as stock prices in these countries are still very cheap. This is especially true for Chinese stocks, which Jitta Wealth's AI Market Prediction found have a 2x higher proportion of good, cheap stocks than expensive stocks.

Or if you're still unsure of which stock market to invest in, I think it's worth considering investing in short-term US bonds, which yield around 4%. This level of return isn't bad, and you can wait until the US stock market adjusts, which I expect to see around 2569. At that point, you can switch back to the US stock market. Looking at the long term, investing in US stocks remains an attractive opportunity, especially in technology stocks related to AI, which are expected to show high growth and profits.

I also have a formula that will help you reduce investment risk with the Core-Satellite portfolio management principle by dividing the portfolio into two parts: the Core portfolio, or the main portfolio, approximately 2-70% of the portfolio is invested in stable and easy-to-follow US stocks, such as index funds or ETFs that reflect the overall market. The other part is the Satellite portfolio, approximately 80-20% invested in high-growth stocks or specific stocks with the potential to generate high returns, such as AI technology stocks, Cloud Computing, Digital Transformation, etc., to increase the opportunity for higher returns.

With this type of portfolio management, regardless of whether the market is rising or falling, as long as you continually adjust your portfolio to return to the planned proportions, you're sure to have a strong portfolio that can grow steadily over the long term.