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

Market Sentiment & Trading Behavior - Charles Schwab's STAX index, a behavior-based model analyzing over 40 million accounts, indicates increased bullish sentiment, reaching a seven-month high in October [2] - The STAX indicator has outpaced the S&P 500 for three straight months, marking the first time this bullish trend has been observed since March 2021 [3][4] - Investors are showing a tendency to "buy the dips" in stocks like Nvidia, Meta, and Microsoft, which experienced pullbacks of at least 4-5% in October, with Meta seeing a 15% pullback after earnings [8][9] - Conversely, investors are "selling the rips" in stocks like AMD (up over 50% for the month), Apple (setting an all-time high), and Tesla (bouncing off the bottom), using rallies as opportunities to trim positions [9][10][11] - Clients are starting to allocate a small portion of their portfolios to commodities like gold (27-28% of clients looking to allocate more) and crypto (around 24%), diversifying beyond stocks [13] - There was a shift in October back to the "MAG 7" stocks, indicating a return to familiar and perceived safer investments during market pullbacks [14] Economic Outlook & Investment Strategy - Despite a prolonged government shutdown, the market has largely remained unaffected, with earnings, interest rates, and inflation being the primary market drivers [16][17][18] - Corporate America has demonstrated resilience with four consecutive quarters of double-digit gains and record or near-record profit margins, despite challenges like tariffs [20][21] - The US economy is experiencing 4% GDP growth and creating 50,000 jobs monthly, supported by AI spending (340 billion this year going to 450 billion next year) and 17 trillion in foreign direct investment [21][22][23] - Key risks to the market include a reacceleration of inflation and the Federal Reserve maintaining a restrictive monetary policy [24][26] AI & Tech Valuations - While generally not considering the market to be in an AI bubble, some individual AI stocks are deemed overvalued, with Palantir specifically mentioned as too expensive [28][29] - Palantir is trading at 300 times earnings and 100 times revenues, compared to Nvidia at 32 times earnings, suggesting a significant valuation premium [34]