Why This Market Rally Feels Riskier Than It Looks
- Quartz Partners
- May 6
- 3 min read
Disconnect Between Strong Performance and Rising Portfolio Risk
Equity markets have delivered impressive returns for much of 2024 and into 2025. The S&P 500 is flirting with record highs, the Nasdaq has been buoyed by investor enthusiasm around technology and AI, and investor sentiment remains strong. But beneath this surface-level momentum, risks are building—and they’re easier to overlook when the market seems unstoppable.
At Quartz, we believe this is exactly the moment to re-examine what’s driving portfolio performance and whether current allocations are equipped for what comes next.
Market Optimism is High. But the Data Tells a More Complicated Story.
The “Magnificent Seven”—Apple, Amazon, Meta, Microsoft, Alphabet, Nvidia, and Tesla—continue to do the heavy lifting. Their combined share of the S&P 500 has grown to more than 30%, leaving the market increasingly concentrated in a small group of high-priced stocks. That concentration boosts short-term returns when things are going well, but it also means that many portfolios are now more vulnerable to sector-specific volatility.
At the same time, corporate earnings remain flat, and valuations have stretched well above historical averages. The market is pricing in not only a soft landing but a perfect one—despite stubborn inflation, high borrowing costs, and signs of weakness in commercial real estate and regional banks.
What’s Missing from the Headlines
Much of today’s market narrative is built around the idea that the Federal Reserve will cut rates soon and often, triggering a virtuous cycle of growth. But there are three reasons to question that assumption:
Rate cut expectations are already priced in.
Markets have already responded to the expectation of policy easing. Unless the Fed acts more aggressively than forecast—or faster—there may be little room for upside surprise.
Underlying economic stress remains.
Commercial real estate, especially office space, continues to struggle. Regional banks are carrying significant exposure to this sector, and any shocks there could ripple through the broader economy.
Geopolitical uncertainty is intensifying.
International conflict, trade policy shifts, and election-year dynamics all create potential catalysts for volatility—yet these risks are largely absent from investor sentiment right now.
The Cost of Ignoring Market Risk During a Rally
During bull runs, there’s a tendency to chase returns and deprioritize risk management. However, history has shown that some of the sharpest corrections occur after prolonged periods of investor complacency. When valuations are high and everyone is leaning in the same direction, the smallest change in sentiment or data can spark a significant downturn.
This doesn’t mean abandoning equity exposure. It means building in the ability to adjust—to de-risk when conditions call for it and to capitalize on opportunity when the market environment improves.
How Quartz Helps Advisors Navigate Uncertain Markets
Our investment process is designed for moments like this. Through our proprietary PRICE Analysis Matrix, we track over 50 data points across policy, risk, inflation, credit, and earnings to assess where we are in the economic cycle. This adaptive framework enables us to:
Adjust portfolio beta in real-time
Shift allocations toward defensive assets before downturns occur
Re-engage with risk assets when the environment turns favorable
Provide clarity and confidence for advisors managing client expectations
This isn’t guesswork or overreaction. It’s a disciplined approach to mitigating protracted losses while staying aligned with long-term growth objectives.
What Should Advisors Do Now?
Advisors don’t need to predict the future. But they do need to prepare for it. That starts with asking a few key questions:
Are your current allocations too dependent on a narrow slice of the market?
Do you have a plan in place if volatility returns unexpectedly?
Can your portfolios adapt as economic conditions evolve?
If the answer to any of these is unclear—or if it’s been a while since your last portfolio review—now is the right time to act.
Next Step:
Explore how adaptive portfolio construction can help address today’s market complexity.
Or download our latest performance summary to see how our strategies are positioned today.