This post was authored by Adem Tumerkan, Dunham's Content Writer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

On Friday, May 2nd, both of our investment strategies — the globally diversified model (DunhamDC) and the U.S.-focused model (Dunham US) — triggered fresh SELL signals.

This marks the second time in just a few weeks we've seen this kind of double-move.

Recent Strategy Moves

On the back of this, here are some recent strategic moves for DunhamDC:

• Early March: BUY signal triggered as markets declined — equity exposure increased at more attractive valuations.
  
  
• April: Two back-to-back BUY signals in early April, followed by a mid-month SELL — a rare 3x signal sequence.
  
  
• May: SELL signal issued on May 2nd, as market euphoria intensified.

Meanwhile, here are some of the recent strategic moves for DunhamDC US.

• January: BUY signal during early-year weakness, followed by a SELL as markets rebounded.
  
  
• March: BUY signal triggered on initial volatility.
  
  
• April: Two BUY signals in the first week alone — capturing deeper U.S. market fear.
  
  
• May: SELL signal triggered again on May 2nd.

This selling shouldn’t come as a surprise – it’s just a continuation of a trend we’ve been talking about since early April.

Let’s rewind for a moment.

How We Got Here: From Tariff Panic to a Nine-Day Rally

In early April, markets sold off sharply following President Trump’s sweeping tariff announcement.

The initial reaction was swift and brutal, with investors dumping assets amid fears that global growth could slow significantly.

But what followed was just as dramatic. A powerful, relentless rally that erased the entire sell-off — and then kept going.

• In fact, on Friday, May 2nd, the S&P 500 posted its longest winning streak (nine days) since 2004¹.

Figure 1: Bloomberg, May 2025

And while the index is still down ~4% for the year (with the NASDAQ down ~7%), the bounce has been aggressive.

Figure 2: MacroMicro.me

Those who leaned into that volatility were rewarded. And now? The system is telling us something different.

That’s why our DunhamDC strategies sold.

Not based on emotion. Not based on opinion.

But based on how the crowd is reacting, which may look a bit greedy here.

A Quick Recap: Selling Greed After Buying Fear

Back in our April 15th blog, we noted that DunhamDC issued its first SELL signal of the year on April 14th following a flurry of BUY signals in March and early April.

Some of the reasons for rising stock prices since then were:

• Market optimism over potential tariff relief on tech goods, as well as China willing to entertain trade deals.
  
  
• Rumors of auto tariff pauses, boosting automaker shares.
  
  
• Hints of potential Fed rate cuts, reassuring investors amidst ongoing trade tensions.
  
  
• Widespread fear that created attractive entry points.

As these catalysts lifted stocks, DunhamDC trimmed equity exposure, locking in gains while sentiment turned increasingly greedy.

Why the New SELL Signals? What’s Driving This?

The latest SELL signals on May 2nd are an extension of that same theme - rising market exuberance.

The crowd has been euphoric based on:

• Earnings season has delivered a mix of beats, more so than what many expected².
  
  
• The Fed’s dovish tone - amplified by slowing job growth and softening inflation - has increased bets on cuts, fueling “risk-on” behavior.
  
  
• AI-driven stocks and mega-cap tech continue to dominate capital flows, pushing valuations even higher.
  
  
• Geopolitical risks – such as Middle East flare-ups, China trade murmurs - are being brushed off (for now).

Because of these variables (and many more), markets have started flashing greed again, with both the technical and fundamentals indicating potentially overbought conditions.

Valuation: The Elephant in the Trading Room

But beneath the headlines, valuations appear still historically stretched.

• The S&P 500’s forward P/E has climbed back above 21x, nearing post-pandemic highs (aka investors are willing to pay ~$21 for each $1 of expected earnings over the next year)³.
  
  
• Small- and mid-cap stocks still lag, but risk appetite is spilling across sectors as if the downside risks have grown distant.
  
  
• Credit spreads remain tight, suggesting complacency in broader financial markets.

This reflects what our models are indicating: rising valuations, greedy sentiment, and a market potentially running ahead of fundamentals.

But Where Do We Go From Here?

Back on April 8th, I wrote to you in, “DunhamDC is Buying While the Stock Market Crashes and the VIX Soars.” The gist was that when the VIX — aka the volatility index (fear gauge) - spikes above 46 (like it did), it’s historically signaled major long-term opportunities.

And so far, that thesis has held up. But we may not be at the end of the road just yet. . .

For context, WisdomTree’s Jeff Weniger noted that history suggests that rallies like the one we’re in can go further than many expect — and often set the stage for strong performance down the road.

• According to his research, dating back to the late 1980s, the S&P 500 posted a median gain of 20% one year after similar winning streaks - with solid performance often showing up in the weeks and months that followed⁴.

Figure 3: Bloomberg, May 2025

That doesn’t guarantee more upside — but it does suggest we shouldn’t rule it out.

We’ll continue to monitor the data and keep you updated along the way.

In the meantime, stay sharp. Markets may look calm and optimism is building fast — but beneath the surface, there are serious cracks forming.

So don’t be shocked if this thing keeps ripping. Or if it suddenly rolls over.

Nothing’s off the table right now.

Final Comments

DunhamDC remains dynamic and unemotional.

• If this rally keeps running, DunhamDC will sell into greed.
  
  
• If volatility returns and fear takes hold again, DunhamDC will buy into weakness.

It’s that simple.

A strategy built on data - reacting to Mr. Market’s mood, not the media’s noise.

Because in today’s market, what the crowd does matters more than what the headlines say.

And whatever happens next, DunhamDC won’t guess. It will respond.

Want to Learn More?

• Download our DunhamDC Strategy Brochure
  
  
• Read our "Who Is Mr. Market?" One-Pager
  
  
• Connect with our Business Development Team via email or (858) 964-0500 for insights into our latest investment strategies.
  

Sources:

1. S&P 500 posts longest winning streak in 20 years as Trump and China show some willingness to bend on trade | CNN Business
2. S&P 500 Earnings Season Update: May 2, 2025
3. US - S&P 500 - Forward PE Ratio | Series | MacroMicro
4. US Stocks Rebound, S&P 500 Rally Has Powerful Ally in Momentum - Bloomberg

Disclosures:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.

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Past performance may not be indicative of future results. 

No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There may be economic times where all investments are unfavorable and depreciate in value.

DunhamDC (“DunhamDC”) is a proprietary algorithm of Dunham & Associates Investment Counsel, Inc. (“Dunham”) that seeks to mitigate sequence risk, which poses a threat to an investor's returns due to the timing of withdrawals. The algorithm employs what Dunham considers to be a pragmatic strategy, generally making incremental increases to the equity allocation when global stock market prices decrease and decreasing it when global stock prices increase. This approach is objective, unemotional, and systematic. Rebalancing is initiated based on the investment criteria set forth in the investors application and is further influenced by the DunhamDC algorithm.

Due to the large deviation in equity to fixed income ratio at any given time, investor participating in DunhamDC understands that a large deviation in equity to fixed income ratio can have significant implications for the risk and return profile of the account. Accordingly, during periods of strong market growth the account may underperform accounts that do not have the DunhamDC feature. Conversely, during periods of strong market declines, the account may also be underperforming, as the account continues to decline, due to the higher exposure in equities. Similarly, if the fixed income investments underperform the equity investments, it is possible that the accounts using the DunhamDC feature may underperform accounts that do not have the DunhamDC feature, even though they may have adjusted the exposure to equity investment before a decline. Therefore, the investor must be willing to accept the highest risk tolerance and investment objective the account can range for the selected strategy. Please see the Account Application for the various ranges.

DunhamDC uses an unemotional, objective, systematic approach. The algorithm does not use complex formulas and is designed to create a consistent process with limited assumptions based on historical data.

DunhamDC may make frequent purchases and redemptions at times which may result in a taxable event in the account and may cause undesired tax-related consequences.

Trade signals for DunhamDC are received at the end of each trading day with the implementation of the trades not occurring until the next business day, which means that there is a one-day lag that may result in adverse prices.

DunhamDC operates within predefined parameters and rules, some or all of which may not be available to review. While this approach can reduce emotional biases and enhance consistency, it may limit adaptability to changing market conditions, economic considerations, or unforeseen events. Extreme conditions may require deviations from the program’s prescribed approach, and such adaptability may be challenging to incorporate. The DunhamDC algorithm is programmed based on specific criteria and rules, it may not capture certain qualitative or contextual factors that can impact investment decisions or movement in the markets. Beyond the initial assumptions used to develop the algorithm, it lacks other inputs or considerations that human judgement and discretion may be necessary to evaluate. DunhamDC may utilize historical data, statistical analysis, and predefined rules. It does not make any predictions and may add to certain investments before they perform poorly or may divest from other investments before they perform well. Dunham makes no predictions, representations, or warranties as to the future performance of any account.

Accounts invested in DunhamDC are subject to a quarterly rebalance to its target allocation at the time based on DunhamDC in addition to the signals provided by DunhamDC at any given time.

If the variance between any Dunham Mutual Fund’s target percentage of the total account value compared to the current percentage of the account value is greater than 1.00% at the time of the trigger point, the account in DunhamDC will be updated to the new target allocation.

Accounts invested in DunhamDC may contain non-Dunham Mutual Funds, which may materially impact if the account is being rebalanced at the trigger point.

Dunham makes no representation that the program will meet its intended objective. Market conditions and factors that influence investment outcomes are subject to change, and no program can fully account for all variables and events. The program requires making investment decisions based on factors and conditions that are beyond the Account Owner’s and Dunham’s control.

DunhamDC is NOT A GUARANTEE against market loss or declines in the value of the account or a timing strategy. Investor may lose money.

Asset allocation models are subject to general market risk and risks related to economic conditions.

DunhamDC has a limited track record, with an inception date of November 30, 2022.

DunhamDC has a limited track record, with an inception date of July 31, 2024.

Risk Disclosures. An investment in the strategies and the Dunham Funds involves risks. For the Primary Risks of the Dunham Funds, please see: https://dunham.com/disclosures/dunhamfundsrisks.pdf

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Dunham & Associates Investment Counsel, Inc. is an independent investment adviser and broker/dealer registered under the Investment Advisers Act of 1940. Registration does not imply a certain level of skill or training.

Index Definitions

NASDAQ - The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

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