By: Reed C. Fraasa, CFP®, RLP®, AIF®
Are Markets Overdue for a Reset?
Every market cycle eventually raises the same uneasy question: are we overdue for a reset? I hear it often from clients right now, and honestly, I understand why. The S&P 500 is hovering near 6,950 — essentially flat year-to-date after a turbulent stretch — the VIX recently spiked above 21, and headlines have ranged from new global tariffs to uncertainty about the Federal Reserve's next chair. If it feels unsettled out there, that's because it is, at least at the surface level. But I want to share some perspective that I think will help.
The short answer is this: markets don't operate on a schedule. No bell rings simply because time has passed. But there are signals worth discussing, and, more importantly, principles that guide how we make decisions together during moments like this.
What People Actually Mean by a "Reset"
When clients say they're worried about a reset, they usually mean one of three things:
a valuation correction where prices stall while earnings catch up,
a sentiment shift where optimism fades, and risk premiums normalize, or
a cyclical slowdown tied to the broader economy.
Not all resets look like 2008. Many are quiet, uneven, and frustrating rather than dramatic. Markets can reset through time just as effectively as through price — and in some ways, that's precisely what we've been watching unfold this winter.
Where We Are Right Now
To be clear about the current environment: valuations remain elevated. The S&P 500's CAPE ratio recently touched 40, a level not seen since the late 1990s tech era, and the forward P/E sits around 21.5x based on a 2026 earnings forecast of roughly $320 per share. Leadership has narrowed significantly over the past year, with much of the prior bull market driven by a small group of mega-cap technology names. In recent weeks, we've seen that concentration begin to unwind, with institutional investors rotating toward more cyclical and defensive sectors — what some are calling a "Great Rotation."
Layered on top of that are real policy crosscurrents. The White House's announcement of a 15% global tariff (ultimately implemented at 10%) rattled markets earlier this month. Consumer confidence, while ticking up slightly in February to 91.2 on the Conference Board's index, remains well below the peak of 112.8 we saw in late 2024. The University of Michigan's sentiment gauge has improved modestly but still reflects meaningful anxiety, particularly around inflation and purchasing power.
None of this is a reason to panic. But it does suggest the easy years of smooth, broad-based gains may be behind us for now.
Valuations Are a Headwind, Not a Timer
Elevated valuations matter — but primarily for what they tell us about future return expectations, not as a tool for predicting when a correction will arrive. History is full of examples of expensive markets staying expensive for years, even as earnings continue to grow or capital flows remain strong. Betting against markets simply because they "feel rich" has been one of the most reliably costly strategies an investor can adopt.
The more helpful question is not "Are valuations high?" but rather "Are we being compensated for the risk we're taking?" That framing shifts us from anxiety to decision-making, which is where we want to be.
Interest Rates and the Changing Calculus
One meaningful shift from most of the last decade is where interest rates sit. At current levels, cash and bonds offer genuine competition for equities — something that wasn't true in the near-zero-rate environment of the 2010s. That changes the math on risk in ways that are actually healthy: it rewards diversification, raises the bar for equity risk premiums, and gives us more tools to build resilient portfolios.
Markets historically struggle not when rates are merely elevated, but when financial conditions tighten abruptly, or economic growth breaks down. We're observing those conditions, and right now the underlying corporate earnings picture — boosted in part by genuine AI-driven productivity gains — remains reasonably solid.
Corrections Are Features, Not Failures
Here's something worth remembering: the average year includes at least one 5–10% pullback, and a correction in the 10–15% range isn't unusual over any two years. We've been experiencing that kind of choppiness. Bear markets, meaning declines of 20% or more, are far less frequent and typically tied to recessionary conditions that don't yet appear imminent.
Corrections serve a purpose. They reset expectations, curb speculation, and actually restore future return potential. Volatility isn't the problem. Being unprepared for volatility is the problem.
What History Actually Suggests
Markets have endured wars, recessions, inflation spikes, pandemics, geopolitical crises, and policy mistakes — often all at once. Long-term investors have been rewarded not for predicting resets, but for surviving them with their plans intact. The most damaging investor behaviors consistently cluster around these uncertain moments: reducing risk after losses have already been realized, sitting in excess cash waiting for clarity that never quite arrives, and abandoning a strategy at the worst possible time. History doesn't argue against thoughtful caution. It argues powerfully against reaction.
The Risk We Don't Talk About Enough
Many investors focus so intensely on avoiding a market reset that they inadvertently create a different risk: falling short of their long-term goals. Inflation, longevity, taxes, and the opportunity cost of staying on the sidelines are quieter threats — but they are real ones. Missing years of compounding because of fear can be just as damaging as enduring a temporary decline. Our job together is not to be fearless. It's to be deliberate.
How We're Thinking About Portfolios Right Now
Rather than building a strategy around a single market forecast, we want portfolios that can perform reasonably well across a range of outcomes: continued growth at a slower pace, a sideways market where fundamentals catch up to prices, a correction followed by recovery, or a more significant slowdown. A well-constructed portfolio doesn't require the market to be perfect to succeed.
In practical terms, this means we're focused on several things: rebalancing thoughtfully rather than reactively, ensuring you have genuine diversification across asset classes rather than exposure concentrated in a few themes, maintaining enough liquidity that forced sales of volatile assets never meet near-term spending needs, and keeping your allocation aligned with your actual goals and time horizon — not the news cycle.
Periodic pullbacks, should they deepen from here, also create opportunities: rebalancing into weakness, tax-loss harvesting, and adding to long-term positions at better prices. Volatility has a cost, but it also has a use.
So — Are We Overdue?
Markets are always capable of a reset. They are never required to deliver one on our timetable.
The better framing — the one I'd encourage you to carry with you — is that volatility is inevitable, uncertainty is permanent, and progress is uneven. Long-term success doesn't come from predicting resets. It comes from building a strategy resilient enough to endure them.
If markets do reset from here, I want us to be positioned rather than surprised. And if they don't, I want us to continue participating thoughtfully and without regret.
As always, please reach out to your advisor if you'd like to talk through how any of this applies to your specific situation. That conversation is always worth having.
Every market cycle eventually raises the same uneasy question: are we overdue for a reset? I hear it often from clients right now, and honestly, I understand why. The S&P 500 is hovering near 6,950 — essentially flat year-to-date after a turbulent stretch — the VIX recently spiked above 21, and headlines have ranged from new global tariffs to uncertainty about the Federal Reserve's next chair. If it feels unsettled out there, that's because it is, at least at the surface level. But I want to share some perspective that I think will help.
The short answer is this: markets don't operate on a schedule. No bell rings simply because time has passed. But there are signals worth discussing, and, more importantly, principles that guide how we make decisions together during moments like this.
What People Actually Mean by a "Reset"
When clients say they're worried about a reset, they usually mean one of three things:
a valuation correction where prices stall while earnings catch up,
a sentiment shift where optimism fades, and risk premiums normalize, or
a cyclical slowdown tied to the broader economy.
Not all resets look like 2008. Many are quiet, uneven, and frustrating rather than dramatic. Markets can reset through time just as effectively as through price — and in some ways, that's precisely what we've been watching unfold this winter.
Where We Are Right Now
To be clear about the current environment: valuations remain elevated. The S&P 500's CAPE ratio recently touched 40, a level not seen since the late 1990s tech era, and the forward P/E sits around 21.5x based on a 2026 earnings forecast of roughly $320 per share. Leadership has narrowed significantly over the past year, with much of the prior bull market driven by a small group of mega-cap technology names. In recent weeks, we've seen that concentration begin to unwind, with institutional investors rotating toward more cyclical and defensive sectors — what some are calling a "Great Rotation."
Layered on top of that are real policy crosscurrents. The White House's announcement of a 15% global tariff (ultimately implemented at 10%) rattled markets earlier this month. Consumer confidence, while ticking up slightly in February to 91.2 on the Conference Board's index, remains well below the peak of 112.8 we saw in late 2024. The University of Michigan's sentiment gauge has improved modestly but still reflects meaningful anxiety, particularly around inflation and purchasing power.
None of this is a reason to panic. But it does suggest the easy years of smooth, broad-based gains may be behind us for now.
Valuations Are a Headwind, Not a Timer
Elevated valuations matter — but primarily for what they tell us about future return expectations, not as a tool for predicting when a correction will arrive. History is full of examples of expensive markets staying expensive for years, even as earnings continue to grow or capital flows remain strong. Betting against markets simply because they "feel rich" has been one of the most reliably costly strategies an investor can adopt.
The more helpful question is not "Are valuations high?" but rather "Are we being compensated for the risk we're taking?" That framing shifts us from anxiety to decision-making, which is where we want to be.
Interest Rates and the Changing Calculus
One meaningful shift from most of the last decade is where interest rates sit. At current levels, cash and bonds offer genuine competition for equities — something that wasn't true in the near-zero-rate environment of the 2010s. That changes the math on risk in ways that are actually healthy: it rewards diversification, raises the bar for equity risk premiums, and gives us more tools to build resilient portfolios.
Markets historically struggle not when rates are merely elevated, but when financial conditions tighten abruptly, or economic growth breaks down. We're observing those conditions, and right now the underlying corporate earnings picture — boosted in part by genuine AI-driven productivity gains — remains reasonably solid.
Corrections Are Features, Not Failures
Here's something worth remembering: the average year includes at least one 5–10% pullback, and a correction in the 10–15% range isn't unusual over any two years. We've been experiencing that kind of choppiness. Bear markets, meaning declines of 20% or more, are far less frequent and typically tied to recessionary conditions that don't yet appear imminent.
Corrections serve a purpose. They reset expectations, curb speculation, and actually restore future return potential. Volatility isn't the problem. Being unprepared for volatility is the problem.
What History Actually Suggests
Markets have endured wars, recessions, inflation spikes, pandemics, geopolitical crises, and policy mistakes — often all at once. Long-term investors have been rewarded not for predicting resets, but for surviving them with their plans intact. The most damaging investor behaviors consistently cluster around these uncertain moments: reducing risk after losses have already been realized, sitting in excess cash waiting for clarity that never quite arrives, and abandoning a strategy at the worst possible time. History doesn't argue against thoughtful caution. It argues powerfully against reaction.
The Risk We Don't Talk About Enough
Many investors focus so intensely on avoiding a market reset that they inadvertently create a different risk: falling short of their long-term goals. Inflation, longevity, taxes, and the opportunity cost of staying on the sidelines are quieter threats — but they are real ones. Missing years of compounding because of fear can be just as damaging as enduring a temporary decline. Our job together is not to be fearless. It's to be deliberate.
How We're Thinking About Portfolios Right Now
Rather than building a strategy around a single market forecast, we want portfolios that can perform reasonably well across a range of outcomes: continued growth at a slower pace, a sideways market where fundamentals catch up to prices, a correction followed by recovery, or a more significant slowdown. A well-constructed portfolio doesn't require the market to be perfect to succeed.
In practical terms, this means we're focused on several things: rebalancing thoughtfully rather than reactively, ensuring you have genuine diversification across asset classes rather than exposure concentrated in a few themes, maintaining enough liquidity that forced sales of volatile assets never meet near-term spending needs, and keeping your allocation aligned with your actual goals and time horizon — not the news cycle.
Periodic pullbacks, should they deepen from here, also create opportunities: rebalancing into weakness, tax-loss harvesting, and adding to long-term positions at better prices. Volatility has a cost, but it also has a use.
So — Are We Overdue?
Markets are always capable of a reset. They are never required to deliver one on our timetable.
The better framing — the one I'd encourage you to carry with you — is that volatility is inevitable, uncertainty is permanent, and progress is uneven. Long-term success doesn't come from predicting resets. It comes from building a strategy resilient enough to endure them.
If markets do reset from here, I want us to be positioned rather than surprised. And if they don't, I want us to continue participating thoughtfully and without regret.
As always, please reach out to your advisor if you'd like to talk through how any of this applies to your specific situation. That conversation is always worth having.
Reed C. Fraasa is a CERTIFIED FINANCIAL PLANNER™ and founder of HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Reed has 30 years of experience as a fiduciary advisor and is the author of The Person is the Plan®, a unique financial planning process. Reed was a frequent guest contributor on PBS Nightly Business Report and has been featured in the New York Times, Wall Street Journal, and Star Ledger newspapers.
The foregoing content reflects the opinions of Highland Financial Advisors, LLC, and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past.
The above article was written with the assistance of artificial intelligence (AI).