Investors continue to buy the dip amid market risks, plus Palantir's valuation concerns

Market Sentiment and Trading Behavior - The STAX index, a behavior-based model measuring client buying sentiment, rose to a seven-month high in October, indicating increased bullish sentiment among investors [2][3][4] - This bullish sentiment is the first observed since March 2021, driven primarily by AI stocks, particularly the MAG 7 stocks, which have higher beta compared to defensive stocks [4][5] - Over the last three months, the STAX indicator has outpaced the S&P 500 on a month-over-month percentage basis [3] Buying and Selling Trends - Investors are actively buying dips, with notable purchases in stocks like Nvidia, Meta, and Microsoft, which experienced pullbacks of 4-5% during October [8][9] - Conversely, stocks such as AMD, Apple, and Tesla saw selling activity as they reached significant price increases, indicating a trend of buying on dips and selling on rips [10][11][12] Sector Allocation - There is a growing interest in allocating funds towards commodities, with 27-28% of clients looking to invest more in gold and around 24% in cryptocurrencies, indicating a diversification beyond equities [13][14] - Despite this diversification, stocks remain the primary focus for client portfolios, especially during market pullbacks [14] Economic Outlook - The U.S. economy is showing resilience with 4% GDP growth and consistent job creation, countering previous recession fears [21][22] - Corporate earnings have demonstrated double-digit gains for four consecutive quarters, with record profit margins despite challenges such as tariffs [20] AI Market Dynamics - Concerns about an AI bubble are present, but some stocks are deemed too expensive, such as Palantir, which is trading at 300 times earnings compared to Nvidia at 32 times [28][34] - Historical context suggests that current valuations are not indicative of a tech bubble, as the NASDAQ trades at 35 times earnings, significantly lower than previous tech bubbles [35][36]