"Fed before crucial decisions: Is it time to diversify risks in investments?"

The recent Federal Reserve meeting is shaping up to be a crucial point for investors and stock market analysts. Jerome Powell, the Fed Chairman, could announce a 25 basis point rate cut, a move that many anticipate but which has significant implications in the current context of the U.S. economy. With economic growth appearing solid and inflation reluctant to yield, the Fed’s decisions could set the stage for the future of the S&P 500, which has seen a remarkable increase of 27% this year and 24% last year. However, the market situation is not as straightforward as it might seem. As the market capitalization of the top 10 companies in the S&P 500 reaches an astonishing 39% of the total, concerns arise about market concentration and its implications. This group, which includes giants like Amazon, Apple, and Microsoft, has a Price Earnings Ratio (PER) of 31 times, significantly higher than that of the remaining companies in the index, which stands at 19 times. This disparity not only indicates an extreme valuation phenomenon but also suggests a potential bubble, similar to the one experienced before the burst of the internet bubble in the early 2000s. High valuations, combined with an environment of full employment and profit margins that appear to have peaked, make the future seem uncertain. A prudent investor, faced with this reality, should reconsider their approach and consider diversification as a key strategy to mitigate risks. The traditional argument of "there is no alternative" (TINA), which has gained popularity with the rise of the MAGS, seems more fragile in light of recent data. In fact, other investment styles have recorded double-digit gains so far this year, often at much more attractive prices. On the other hand, international equities are showing resilience, with dollar returns also reaching significant figures. This suggests that there are opportunities beyond the confines of the S&P 500, where valuations are more reasonable. Additionally, the fixed income market, while not presenting itself as a "cheap" option on its own, offers real yields that may be attractive to those seeking stability in their portfolios. The urgency to diversify risk has never been more palpable. After two years of outstanding returns, it is the right time for investors to reconsider their exposure to the MAGS and the S&P 500. The temptation to continue betting on these massive growth companies is understandable, but it could also prove to be a trap in an environment where valuations are already at concerning levels. As the Fed prepares to adjust its monetary policy, the future of interest rates becomes a hot topic. A long-term increase in these rates could have an adverse effect on the stock market, creating a scenario where current valuations are even harder to justify. History has shown that peaks in valuations often precede significant market corrections. In this context, critical investment analysis is more relevant than ever. Data suggests that although the MAGS have been the market leaders, they are not the only options available. Investments in less overvalued sectors present a viable alternative for those looking to protect their capital and take advantage of less risky opportunities. Ángel de la Fuente, CEO of Auerbach Grayson and trustee of the Hermes Institute, has emphasized the importance of this diversification in uncertain times. As the market and economy evolve, it is essential for investors to adopt a more balanced approach that not only focuses on large-cap stocks but also seeks opportunities in other areas of the market that could offer sustainable returns and less risk in the future.