Stocks have been on a record run in 2024, with the S&P 500 crossing the 6,000 mark this month. That has prompted investor jitters over whether the market is too frothy and overvalued, setting the stage for a possible pullback early next year.

But Simeon Hyman, global investment strategist at ProShares, doesn’t see it that way. He believes the stock market is much less risky today than most investors think, although he does still advise investors to make some portfolio moves to stay safe. I recently spoke to Hyman for an episode of my Money Life Podcast about his take on the market and what investors should consider at year end.

“I’m going to add something that I think that people may have not been paying attention to. And that is the fact that the stock market in one very important way is substantially de-risked. And everybody thinks the market’s at a lot of risk because of valuations,” Hyman said.

“But here’s my insight. Leverage. It’s at all-time lows. There is very little debt on the books of the S &P 500. And that’s a significant risk offset to all the other things you might talk about. And in fact, that leverage is even substantially lower than, as an example, going into the tech bust of 2000. And one of the things it means is that those earnings to equity holders, they’re less leveraged,” he said.

Hyman admits the stock market may be a bit expensive, trading at 22 times forward earnings projections. But he said the prospects of more expansionary fiscal policy and potential economic deregulation in 2025 could end up justifying those valuations.

“We’re calling it ‘rational exuberance.’ 20-ish [for the earnings multiple] would be a more normal number, so it’s a little bit inflated. But hey, we’ve had 8% year-over-year growth in the third quarter and expectations for next year are 10% or 12%. So that’s reasonable,” he said.

But while continuing to ride the market higher might be justified, investors still need to practice good risk management.

“You don’t manage that risk by trying to time your entry and exit. That is a fool’s errand. The way you manage the risk of the equity markets is with the rest of your asset allocation, predominantly fixed income,” he said.

While bonds have been mostly a losing proposition in the long era of near zero interest rates and fell in tandem with the stock market in a major 2022 correction, conditions today suggests bonds will once again resume their position as a counterbalance to stock downturns.

“We already saw it this summer. People forget, for about a millisecond, the equity market corrected 10% this summer. The aggregate bond index went up seven concurrently. So bring it back. Bring your asset allocation back because if you try to time the equity markets, you’re probably going to lose,” he said,

“But if you have some bonds that now can do the job they could not have done in the last 20 years, that’s what’s going to help you if something does go wrong on the equity side of your portfolio,” Hyman said.

I also spoke to Hyman about ProShares investment products and how you can use them to diversify and strengthen your portfolio and about trends in AI and crypto and what they mean for the market, along with other topics. Listen to the full interview with Hyman.

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