Stocks are at record highs, but some Wall Street strategists are warning of potential risks due to excessive optimism. Buying activity has been strongest among smaller companies, leaving markets more fragile if momentum stalls. The Nasdaq 100 has surged 46% since April lows, driven by enthusiasm, particularly around AI.

Citi’s Levkovich Index indicates markets are deep in euphoria, historically leading to weaker returns. Client sentiment at Goldman Sachs is at its highest since December, while Barclays’ tracker shows “exuberant” sentiment. Concerns about overconfidence and high valuations persist as the S&P 500 trades at roughly 25 times expected earnings.

Market sentiment is showing signs of exhaustion, with growing speculative behavior and call-option buying at record levels. Global economist Chris Watling warns of a frothy, greedy market with little downside protection. While he doesn’t predict the end of the bull market, short-term corrections are increasingly likely.

Read more at Yahoo Finance: Wall Street says stock market’s rise to records poses risks