When people say stock markets have been on a historic run, they really mean it.

The S&P 500 is on track for its third consecutive year of double-digit gains, or six of the past seven, something that hasn’t happened since the late 1990s, according to BMO Capital Markets.

Enthusiasm for high P/E stocks, gold, cryptocurrencies, leveraged debt and even sports betting, along with a low VIX or fear ratio, have indicated over the past year that markets have been shrugging off risk, said Avery Shenfeld, chief economist for CIBC Capital Markets.

Lately though there have been signals that change is in the air.

Market watchers were all in a twitter last week when Michael Burry , known for his “Big Short” on the housing market before the 2008 crisis,

threw in the towel , announcing he was liquidating funds and returning capital from Scion Asset Management because his “estimation of value in securities is not now, and has not been for some time, in sync with the markets.”

“Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play,” he wrote on X shortly before filing for the wind-down of his fund.

Burry was short on Nvidia Corp. and Palantir Technologies Inc ., two of the stocks behind this spectacular market run, but oddly enough, the Nasdaq didn’t rally that day; it fell 2 per cent with Nvidia shedding 3.5 per cent.

On Thursday last week, the S&P 500 fell more than 1 per cent, the third such drop in two weeks, according to Bloomberg. Before that it had only happened once in three months.

“While a few days doesn’t make a trend, there are signs that investors may be taking risk seriously again, after a period where that was just for wimps,” Shenfeld said in a note Friday.

If you are looking for a reason why, Artificial intelligence is certainly the elephant in the room. Questions are being raised about whether the payoff from AI will justify the trillions that are being spent on it, said Shenfeld. And in recent weeks investors have learned that Peter Thiel’s hedge fund and SoftBank Group Corp. have sold off their Nvidia shares as concerns about an AI investment bubble rise.

Shenfeld said a breakthrough technology like AI should come with an elevated risk premium because of the uncertainties, but this may not have been the case.

A risk reassessment could be triggered now by earning projections that put the payoff a bit further in the future than investors are comfortable with.

“For those AI players without other large and profitable existing lines of business, debt is starting to pile up, and the revenues are far enough away that we are likely to go through periods of doubt along the road to riches, if that’s indeed the final destination,” he said.

Further doubt has arisen from the end of the U.S. government shutdown. Though this briefly lifted stocks last week, it is now depressing them as investors brace for news that might not live up to their expectations.

“For markets, no news was good news,” said Shenfeld. Without government data, investors assumed the best: that the economy was in decent shape, inflation was getting somewhat under control and the labour market was slightly soft.

That would be the perfect combination for stock and bonds, allowing the

U.S. Federal Reserve to cut rates to support growth in an economy that wasn’t too weak to challenge earnings expectations, he said.

“The months ahead will put that Goldilocks view to the test, beginning with a Fed decision in December that might disappoint those hoping for a further easing,” he said.

If the delayed job numbers aren’t weak enough or inflation is slightly stronger then markets will pare back their expectations of a Fed cut and stocks could fall.

It could also work the other way. Though economists have enough data to determine that the U.S. economy is in good shape in the third quarter, the fourth “is a blank slate,” said Shenfeld.

If that outlook dims it could challenge optimism over corporate earnings.

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Elevated uncertainty may be the new normal, says the International Monetary Fund — but it appears we are getting used to it. The IMF said its World Uncertainty Index has doubled since January and is likely to stay at exceptionally high levels.

To better understand the spike, the IMF created a sub-index measuring uncertainty related to policy, which also recently hit a monthly record high.

However, as today’s chart shows, policy uncertainty is failing to dampen global sentiment which continues to remain resilient.

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Investor jitters over a weakening U.S. dollar, rising government debt and central bank monetary policy have fuelled discussion and debate on Wall Street about what JPMorgan Chase & Co. analysts coined “the debasement trade.” The Financial Post explains what it means and how investors can protect their money.

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McLister on mortgages

Read more Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

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mortgage rate page for Canada’s lowest national mortgage rates, updated daily. Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, Canadian Press and Bloomberg.

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