Opinion: The Stock Market Is on Shakier Ground Than Wall Street Seems to Think

Wall Street's confidence looks increasingly misplaced as structural cracks emerge beneath the surface.

Hidden Vulnerabilities Exposed

Traditional markets face mounting pressure from decentralized alternatives that operate 24/7 without legacy infrastructure constraints. While institutional investors cling to outdated valuation models, blockchain-native assets continue demonstrating resilience during traditional market downturns.

The institutional denial runs deep—hedge funds still measure risk using frameworks designed for analog markets while digital asset volumes quietly eclipse traditional exchanges. Their compliance departments remain obsessed with SEC filings while crypto protocols process billions without intermediaries.

Market Realities Shift Faster Than Perceptions

Retail traders already migrated to platforms offering global access and transparent settlement. They're not waiting for Wall Street's permission to diversify into assets that actually reflect modern technological capabilities.

Traditional finance keeps playing checkers while digital assets play 3D chess—and the old guard hasn't even noticed the board changed.

Image source: Getty Images.

Wall Street should know the market is on shaky ground

Few Wall Street analysts think President Trump's tariffs are helpful overall. As Fortune magazine's Alena Butros wrote earlier this year, "[A]nalysts are largely unanimous: The tariffs are going to be bad for trade, bad for stocks, and bad for economic growth." Wall Street knows that tariffs can hurt corporate profit margins and reduce consumer demand.

Just because the(^GSPC 0.71%) is up solidly this year hasn't changed most analysts' minds, by the way. As's (SCHW 0.94%) Michelle Gibley put it, "It is likely that the economic impact of higher tariffs is delayed, not averted." Smart analysts understand this.

In just the last few days,(UBS 1.10%) estimated a 93% risk of a U.S. economic recession.(JPM 1.44%) pegs the odds of a recession at 40%.(GS 3.02%) thinks the chance of a recession is 30%. Other analysts don't expect a recession but predict stagflation -- a mixture of stagnant economic growth and rising inflation.

Analysts also know that stock valuations are frothy. I doubt there's anyone on Wall Street who isn't aware that the S&P 500 Shiller CAPE ratio is at its third-highest level ever.

S&P 500 Shiller CAPE Ratio data by YCharts

Most analysts probably also recognize that the Buffett indicator (a ratio of total stock market capitalization to U.S. GDP) is over 213% -- the highest level recorded so far. They're almost certainly familiar with Warren Buffett's 2001 warning that anytime this metric approaches 200%, investors are "playing with fire."

With all of this in mind, you might expect that Wall Street WOULD be cautious about recommending buying many stocks. But is that the case? Nope. A whopping 405 stocks in the S&P 500 have consensus analyst ratings of "buy" or better. How many S&P 500 stocks have consensus "sell" recommendations? A grand total of four.

More seeming inconsistencies

As the infomercials say, "But wait! There's more!" The consensus 12-month price targets for 44 S&P 500 stocks are below their current share prices. Analysts as a group still recommend buying 21 of them. To be fair, we could see upward price target revisions soon for some of those stocks. For example, Google parent(GOOG -0.63%) (GOOGL -0.56%) recently received good news from a federal judge that lowers its risk level. I suspect the price targets for the stock will move higher as a result.

Here's another head-scratcher. Analysts know that share prices tend to track with earnings growth over the long run. Wall Street predicts negative earnings growth over the next five years for 40 stocks in the S&P 500. However, 22 of those stocks have consensus "buy" or better recommendations.

Interestingly, analysts project average earnings growth of below 5% over the next five years for 64 S&P 500 stocks. Thirty-nine of those stocks have consensus "buy" or better ratings. You'd think that prudent analysts would rather recommend investors put their money in practically risk-free short-term U.S. Treasuries with yields of over 4% than buy a stock whose earnings are likely to grow less than 5%.

What should investors do?

There's enough evidence for me to believe that the stock market is on shakier ground than Wall Street seems to think. What should investors do if I'm right?

I think Buffett's approach is worth following. He famously doesn't rely on Wall Street's perspective on the stocks he buys. The legendary investor does his own homework, evaluating underlying businesses, growth prospects, and valuations before putting even one cent into a stock.

Buffett has also built a hefty cash stockpile for(BRK.A -0.06%) (BRK.B 0.95%). That could be a smart MOVE for other investors as well, considering the market risks we discussed earlier.

Importantly, though, Buffett isn't panicking. He still owns dozens of stocks, many of which he doesn't plan on selling regardless of what the stock market does. Buffett knows that a well-diversified basket of stocks will likely deliver positive returns over the long term.

Even if I'm wrong about the stock market, Buffett's strategy should be a good one to follow. And maybe I am wrong. But I'm not convinced that Wall Street is completely right, either.