New York, USA – After experiencing significant growth since hitting a low point in August, the stock market is now facing increased volatility. This shift was highlighted by the sharp decline in market capitalization of tech giant Nvidia on September 3, with a loss of nearly $280 billion.

Although a 10% decline may not seem significant given its year-to-date performance of over 140%, it still grabbed headlines in the financial world. The market weakness can be attributed to various factors, one of them being the weakness in the ISM Manufacturing Index. Despite a slight rebound in the index, it continued to show signs of contraction, particularly in new orders.

While the manufacturing sector in the US is smaller compared to the consumer/services sector, it serves as a crucial indicator of economic cycles. Investors are paying close attention to the new orders component of the ISM Index, as it has led to underperformance in cyclical stocks relative to defensive stocks. This trend is expected to persist for some time.

Moreover, concerns about high stock market valuations are also contributing to the uncertainty. Data from JPMorgan indicates that the S&P 500 is currently trading at a forward P/E ratio of 21.2x, the highest since the Dot-com bubble era. This, combined with the current economic climate, suggests a limited margin for error, especially if earnings growth expectations fall.

Investors are closely monitoring asset manager positioning in the market, particularly in the S&P 500 E-mini future. A high level of bullish positioning, close to historical levels that preceded pullbacks, is raising concerns about the market’s risk/reward balance.

Market experts, including Bloomberg’s John Authers, have warned about the rich valuations of US stocks, particularly in sectors related to artificial intelligence. Any negative data on US jobs following the ISM Index could trigger a market selloff.

While not predicting a sell-off, many investors are preparing for potential market corrections by reallocating resources. Several dividend stocks are being considered for investment, including Amphenol, Waste Management, and Topaz Energy, all of which have strong business models and growth potential in the long term.