Investor's Strategy on How and Why the Stock Valuations Are at Historical Highs

With stock valuations running above historical norms, investors need to take a more agile approach, says David Katz, president and chief investment officer at Matrix Asset Advisors.

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When asked how he navigates between sticking with a pricey market or shifting toward value opportunities, Katz’s advice was straightforward: “You have to do both,” he told CNBC Pro on Monday.

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Market Outlook: Still Positive, but With Caution

Katz remains cautiously optimistic about the broader market but warns against diving in aggressively at current levels.
“We think the overall stock market can continue to do OK,” he said. “But if you haven’t been in the market already, we would not be jumping in with both feet here.”‍

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The challenge lies in valuations that sit well above long-term averages. According to FactSet, the S&P 500 trades at about 22 times forward earnings, compared to its 20-year historical average of roughly 16. This elevated multiple comes even as economic growth slows and inflation pressures persist.

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Driving much of this expansion are megacap tech giants, fueled by enthusiasm around artificial intelligence. These names have propelled the S&P 500 higher this year, despite macroeconomic headwinds.

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Even in a market where valuations look stretched, Katz sees attractive entry points in certain areas.
“We do think there are pockets of undervaluation [in the S&P 500], and that’s where we believe new money should be deployed,” he said. “We also expect a rotation into some of these undervalued areas.”

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The sectors catching Katz’s attention include healthcare, consumer staples, and small-cap stocks all of which have lagged the broader market in 2025. Another area of interest is financials, including banks, which as a group have underperformed the S&P 500 by about 1.3 percentage points so far this year. Katz believes these stocks could have more upside ahead.

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Inside Matrix Advisors’ Portfolio

The Matrix Advisors Dividend Fund (MADFX) holds sizable positions in Microsoft, Texas Instruments, and JPMorgan Chase its three largest holdings, representing nearly 20% of the portfolio. Year-to-date, the fund is up 10.4%, placing it in the 9th percentile among more than 1,100 similarly benchmarked mutual funds, according to Morningstar.

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Another notable holding is Qualcomm, the fund’s fourth-largest position. Katz argues the San Diego-based chipmaker has been unfairly punished, noting the stock is down nearly 4% this year despite strong fundamentals.

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Despite his sizable tech positions, Katz is more guarded about the sector overall. The surge in AI-related enthusiasm, he warns, does not make valuations irrelevant.

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“We would not get caught up in believing that because AI and technology are doing so well, valuations don’t matter or that the S&P 500 should trade at a higher multiple,” Katz cautioned. “Those types of assumptions always come back to bite investors.”

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Instead, Katz advocates for a surgical approach to AI investing. Rather than chasing hype, he suggests being deliberate and selective about which companies are best positioned for sustainable growth in the space.

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Katz’s advice is clear: stay balanced and stay disciplined. While broad market valuations look lofty, select areas still offer compelling opportunities. For investors, that means embracing a strategy that combines exposure to quality growth names with value-oriented plays in sectors that have been left behind.

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“You can’t go all-in or all-out,” he emphasized. “The key is finding the right mix.”

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