Markets at All-Time Highs: Participate, but Protect - by Thomas Ng 1 Jun 2026

Dear Clients,

The S&P 500 has once again pushed towards all-time highs, recovering swiftly from the recent geopolitical-driven correction.

On the surface, price action suggests that all is well.

Yet beneath the headlines, the underlying economy appears far less convincing.

We continue to see signs of softness in the economy - weaker job prints, moderating consumer sentiment, and rising credit stress. Closer to home, even the Singapore economy is not immune, with retrenchments becoming more visible despite overall growth appearing resilient.

This divergence raises a key question:

Is market strength fully reflective of economic reality, or increasingly driven by powerful narratives?

The Current Setup: Strong vs Fragile

There are clearly two competing forces shaping the current market environment. 

On one hand, the bull case for the S&P 500 (SPX) remains intact:

• Oil impact remains structurally contained, with the US now a net exporter of crude
  

• Potential policy support from the Federal Reserve should growth moderate
  

• The US$750bn (and counting) AI capex cycle remains strong, with continued aggressive investment from hyperscalers and corporates. This spending will ultimately flow through the broader AI value chain, potentially providing a significant tailwind to the US economy and selected companies
  

• AI may have reached a stage where it is creating its own economic ecosystem:

  • Capex drives infrastructure buildout
    

  • Infrastructure enables new applications
    

  • Applications drive productivity gains
    

  • Productivity gains justify further capex
    

  • In many ways, this resembles how Bitcoin eventually gave rise to an entire crypto economy of exchanges, wallets, stablecoins, mining companies and thousands of related projects.
    

• AI-driven productivity gains may help offset broader macro weakness
  

• Trump's proposed "Big Beautiful Bill" and broader pro-growth policies may continue to support markets and sentiment
  

• K-shaped economy dynamics continue to support asset markets despite uneven economic conditions
  

• A weaker USD continues to support exports and earnings translation
  

• Wall Street machinery momentum remains strong, with continued anticipation of large IPO pipelines such as SpaceX, OpenAI and Anthropic
  

• Q1 earnings season is reinforcing the structural bull case:- - More than 80% have beaten both EPS and revenue expectations - Earnings revisions continue to trend higher - Analysts now project approximately 18.6% earnings growth for full-year 2026 

On the other hand, risks are building:

While the bull case remains supported by liquidity and narrative strength, several cyclical and structural risks are also becoming more visible:

• 2026 mid-term election dynamics - historically associated with rising volatility and policy uncertainty
  

• US 4-year Presidential Cycle - the second year is often a weaker and more unstable market phase historically
  

• War and crude inflation risks - sustained geopolitical escalation could reintroduce global inflationary pressure
  

• Potential leadership transition risks at the Federal Reserve (i.e. a new Fed Chair, Kevin Warsh) could increase policy uncertainty and market volatility
  

• Softening macro signals:- Sustained weak job numbers- Deteriorating consumer sentiment- Rising credit card delinquencies
  

• Valuation risks remain elevated, limiting margin of safety at current levels
  

• Warren Buffet's Berkshire Hathaway continues to hold record cash levels
  

• Howard Marks, founder of Oaktree Capital, has repeatedly emphasised that starting valuations matter, and that current elevated entry valuations have historically resulted in weaker long-term returns
  

• Behavioural risk - what Howard Marks refers to as the "perversity of risk":
  

"Our flawed brain leads us to subjectively experience low levels of risk when risk is actually quite high. In simple terms, markets often feel safest when prices are rising strongly and everyone around us appears bullish. Ironically, that is sometimes precisely when risks are actually building beneath the surface - because valuations become stretched, optimism becomes excessive, and investors gradually lower their guard. Conversely, markets often feel the scariest near market bottoms, when in reality valuations and future opportunities may actually be improving. This "perversity of risk" is one of the key reasons why investing is often emotionally difficult - and why risk management becomes increasingly important during euphoric market environments. In other words, risk is often highest when it feels lowest."

• Robert Shiller, creator of the famed Shiller PE Index, has also cautioned recently about elevated valuation conditions and rising recession risks into 2026 should current divergences persist
  

• AI narrative risk - if the monetisation or real economic benefits from AI disappoint, markets could reprice sharply
  

• Market performance remains heavily reliant on a small group of mega-cap companies
  

• Questions are also emerging on whether the massive AI spending today may eventually lead to overcapacity in future
  

• AI & tech companies circular (vendor) financing risks
  

• Michael Blurry's AI chip lifespan depreciation arguments on Hyperscalers
  

• February 2026 Citrini Research memo warns of an "intelligence displacement spiral" leading to a "doom loop of productivity without prosperity" - this scenario models how widespread AI adoption could cause mass white-collar unemployment, resulting in severe economic contraction
  

In short, both the bull and bear cases are not only credible - they are unfolding simultaneously.

And as markets have shown time and again:

Price can remain resilient longer than fundamentals suggest.

My Positioning: Cautious, but Pragmatic

The challenge is that both observations can be true at the same time.

Since early last year, my stance has remained consistent.

I remain cautious on US equities, given policy uncertainty and what appears to be a softer underlying economy.

However, I also acknowledge this:

The AI narrative may have a longer runway than many expect.

This creates a challenging environment for investors:

• Staying fully invested feels uncomfortable
  

• Exiting entirely risks missing further upside

A Two-Fold Strategy: Participate, but Protect

At current valuation levels, investors may need to think beyond simply pursuing growth.

It is about balancing participation with preservation.

This is where my two-fold strategy - "Participate, but Protect" - becomes relevant.

Solution 1: Growth, Yield & Capital Protection

My strategy refers to an investment solution, which I will refer to as Solution 1: Growth, Yield & Capital Protection.

If you are agreeable with the above framework, let me now share two practical use cases where Solution 1 may fit into a portfolio strategy.

Two Practical Use Cases

1. For investors sitting on substantial equity gains (Legacy Strategy)

One practical use case for Solution 1 is for investors currently sitting on substantial gains in US or global equities.

Given the policy uncertainty we have seen since Donald Trump returned to office, markets will likely continue to experience periods of heightened volatility, and the strong gains we are seeing today can sometimes be given back quickly during sharp market corrections. 

A. Protecting Volatile Market Gains

As such, the idea here is to selectively take some profits and rechannel part of those profits into Solution 1.

This helps convert a portion of today's more volatile market gains - which could otherwise be eroded during a downturn - into more stable, ring-fenced wealth for your family, given the capital protection feature of Solution 1 upon passing.

Also just to clarify upfront - this is not about exiting full positions in your DBS, Nvidia or other core holdings.

Rather, it is simply about harvesting a portion of gains (selling only enough shares to crystallise part of the profits only) to participate in Solution 1, while your core holdings remain untouched and continue to participate in the market.

In other words:

• You are not touching your original invested capital in stocks
  

• You are simply taking a portion of what the market has already given you (e.g. gains from DBS, Nvidia, S&P 500 ETF, etc.) and converting it into more permanent, protected wealth for legacy purposes

In a nutshell:

You are simply taking a portion of what the market has already given you - and making it permanent.

With markets now hovering near all-time highs, this may be a timely stage to consider locking in part of those gains.

B. US Estate Tax Exposure

There is also another important structural consideration that is often overlooked:

US estate tax exposure

For non-US investors, US-listed assets may potentially be subject to US estate tax rules. In many cases, estate tax considerations may arise once US-situs assets exceed approximately USD 60,000, with tax exposure potentially reaching up to 40% at higher portfolio values.

Given the strong performance of US equities over recent years, this issue may become increasingly relevant from a legacy planning perspective.

As such, rechanneling part of US equity gains into Solution 1 may also potentially help mitigate future estate-related tax exposure.

(Actual tax treatment may vary depending on individual circumstances and applicable tax treaties)

2. For investors with fresh capital (Participation Strategy)

For investors who still wish to remain invested, Solution 1 offers:

• Continued exposure to global markets
  

• Regular monthly income stream
  

• Built-in downside protection not available in:
  

  • Direct equities
    

  • ETFs
    

  • Traditional unit trusts
    

In other words, investors may continue participating in potential upside opportunities, while simultaneously introducing a layer of structural protection into their portfolio construction.

Closing Thoughts

Markets today sit at a delicate intersection.

• The AI-driven CAPEX cycle may continue for longer than many expect

• Yet valuation, economic and geopolitical risks are becoming increasingly difficult to ignore

As such, the question is no longer:

Should I be invested?

But rather:

How do I stay invested, while protecting what I've already built?

There is no perfect solution in investing.

The objective is simply to build a portfolio that allows us to participate in opportunities while remaining prepared for outcomes we cannot predict.

In my view, this is precisely the gap Solution 1 is designed to address.

If this framework resonates with you, or if you would like to explore how it may fit within your portfolio positioning, feel free to drop me an email at thomasng@phillip.com.sg with Subject Heading: Thomas Ng Solution 1 for a further discussion.

Thank you & regards,

Thomas Ng, CMT

Principal Trading Representative 首席股票经纪

www.thom-ng.com

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