Should investors be nervous as the S&P 500 hits a record high?

By Chris Lau for Kapitall.

The second quarter—the first half of the trading year—ended on a high note. The S&P 500 hit a record high, leaving bearish short sellers with bigger paper losses. Helped by persistently low interest rates, lack of fear and leadership from various sectors, why are few investors nervous about a selloff?

Leadership

The financial sector helped boost confidence for the markets, though there are exceptions. Bank of America ( BAC) and Citigroup ( C) are underperforming the financial sector. The two companies are trading below the Financial Select Sector SPDR ( XLF) ETF.

When lending terms are easy, banks tend to do well. If financials start to weaken, it may be a warning for investors that profit taking is ahead.

Strong tech sector

Microsoft ( MSFT) and Apple ( AAPL) provided the markets with strong leadership.

Microsoft closed its Nokia devices acquisition this year, while Apple shares made a new yearly high recently. Apple’s profitability continues to awe the market. It acquired Beats, a maker of headphones, signaling the firm is willing to make big acquisitions to bolster its business in audio hardware and music streaming.

Microsoft continued its steady growth in profitability. Lagging Windows sales failed to hold down shares. Investors are finally appreciating that Windows generates strong cash flow from its software sales.

Possible risks

Tension in Russia could hurt the positive sentiment. Ongoing weakness in China’s growth could limit upside in the markets. Both risks are macroeconomic variables that are difficult to forecast. For now, investors should stick with strong companies that have reasonable valuations. The ongoing rise in stock prices is raising risks for investors.

Companies that fail to match growth expectations to their valuations will correct to the downside. The widening disconnection between those two variables should start making investors nervous as the market enters the third quarter.

Do you think it's time to reevaluate stocks in the S&P 500? Use the links below to begin your own research.

Click on the interactive chart to view data over time. 

 

1. Apple Inc. ( AAPL, Earnings, Analysts, Financials): Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at $472.72B, most recent closing price at $527.55.

 

 

2. Bank of America Corporation ( BAC, Earnings, Analysts, Financials): Provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments primarily in the United States and internationally. Market cap at $175.76B, most recent closing price at $16.53.

 

 

3. Citigroup, Inc. ( C, Earnings, Analysts, Financials): Provides consumers, corporations, governments, and institutions with a range of financial products and services. Market cap at $148.31B, most recent closing price at $48.98.

 

 

4. Microsoft Corporation ( MSFT, Earnings, Analysts, Financials): Develops, licenses, and supports a range of software products and services for various computing devices worldwide. Market cap at $313.81B, most recent closing price at $37.69.

 

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

More from Stocks

Jim Cramer: Oil Needs to Go Down to See Worldwide Growth Pick Up

Jim Cramer: Oil Needs to Go Down to See Worldwide Growth Pick Up

Jim Cramer on the Problem With the Case for More Rate Hikes

Jim Cramer on the Problem With the Case for More Rate Hikes

Video: Jim Cramer on Fed Rate Hikes, Oil Prices and Starbucks Worries

Video: Jim Cramer on Fed Rate Hikes, Oil Prices and Starbucks Worries

Rent-A-Center Bulls Quadruple Their Money

Rent-A-Center Bulls Quadruple Their Money

Dow Turns Lower as Losing Streak Extends

Dow Turns Lower as Losing Streak Extends