If you want to know what “climbing the wall of worry” looks like, just look at the stock market.

The Standard & Poor’s 500 has been in two-steps-forward, one-step-back mode since last fall, grinding higher to where it is now pushing up against resistance near the 7,000 level.

As the benchmark has cycled between record highs and support levels around 6,700, investors have treated every downturn as a buying opportunity.

That thinking itself has many industry watchers suggesting that investor psychology will play a big role in what happens next.

While plenty of pundits and experts have pointed to consumer sentiment numbers, insiders are waiting to see when investor appetite for leaning into downturns changes.

Steve Sosnick, chief strategist at Interactive Brokers and one of the few market experts who has been forecasting a stock market downturn in 2026, told me in a December interview on my podcast, “Money Life with Chuck Jaffe,” that his biggest takeaway from the success of 2025 was the power of “buy the dip” and just how determined and resolute small investors have been about seeing every dip as a buying opportunity.

That worked out great for investors when the market stumbled heading into the Liberation Day announcement of tariffs and the subsequent market tumult. It may not always work, though, warned Sosnick and veteran fund manager Brad Lamensdorf, best known as manager of the Ranger Equity Bear fund (HDGE)

The stock market rally is impressive, but a quiet risk is building.

TIMOTHY A. CLARY / GETTY IMAGES.

A musical chairs moment for buy-the-dip crowd?

Sosnick noted that anyone with an infinite amount of time would always want to buy the dip, because the market always, eventually, goes up.

However, the key word there is “infinite.”

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“My thought going into 2026 will be, you know, is there a point where buy the dips doesn’t work, because there are times where it doesn’t work for long periods of time,” Sosnick said in a recent interview with me.

Between benign or generous market forecasts for the year and three years of double-digit gains, investor expectations could be overblown. If investors are disappointed and then lose some buy-the-dips nerve, it will create market headwinds.

Long-short portfolio manager Brad Lamensdorf says the good feelings have investors less nervous than they should be right now.

In an interview from Money Life for Feb. 3, Lamensdorf says that “absurd” valuations and sentiment gauges that are “really, really aggressively optimistic” are laying the groundwork for trouble.

On top of those cornerstones, he sees classic signs of building trouble, including average money market account balances at 20-year lows, while margin-account balances are “at the absolute highest they’ve ever been,” creating a situation where “people are extremely aggressive and very, very off balance here.”

On the cusp of a big bear market?

Maybe not.

Lamensdorf, a veteran market-timer, says he’s not necessarily expecting a full-blown bear market but rather a lot more sensitivity in individual names, especially as growth slows.

Further, with Kevin Warsh — President Trump’s nominee to be the next Federal Reserve Chairman–– being seen as hawkish, Lamensdorf worries that rate cuts will push yields on longer bonds significantly higher.

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As those rates have risen globally, “sovereign debt markets are starting to become bear-market oriented for the bond markets,” Lamensdorf said. Eventually, he thinks that trend hits home in the U.S., and if long-bond yields get to the 6.5% range, “the markets are not going to love that, and clearly that would slow down growth as well.”

Lamensdorf said that the market currently is at a 23-year low in dividend yield, while trading at well over 20 times earnings.

That puts stocks in a territory to be much less attractive relative to those rising long Treasury yields.

“So when you’re looking at the forward yields relative to the risk-free rate of return, it’s actually as low as the ratio was in 2000,” Lamensdorf explained “So for the people that tell me, this is not a really overvalued market, this is probably one of the most overvalued markets, ‘73, ’87, ‘90 and ’98-’99-2000. This is a very, very expensive market.

“And differently from the past,” he continued, is that the “average individual account in America is almost over 60% equity. It never even reached 52% in the 2000 period, so I could even make a case that the market is even more overowned than it was in 2000 by individual investors.

“That’s just not how bull markets start, that’s traditionally how they end, unfortunately.”

Stocks: Pockets of safety for dip buyers

Despite that warning, Lamensdorf noted that he remains bullish on companies investing heavily in capital expenditures – he highlights Amazon (AMZN) – and large biotechs like Roche Holding (RHHBY), Johnson & Johnson (JNJ), and Amgen (AMGN).

As for what he dislikes, Lamensdorf says many stocks that are already, under the surface, in bear markets.

“We were short a lot of software, we hate software,” he says on the podcast, which you can find at moneylifeshow.libsyn.com. “They are getting creamed and they’re pretty oversold now, but I wouldn’t be trying to bottom fish in software. I think that that is a bear market. And if you get a bounce, you should be selling those, not buying more here.”

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