U.S. markets and stock exchange traded funds tried to pare early morning losses toward the end of Thursday’s session.

On Thursday, the Invesco QQQ Trust (NASDAQ: QQQ) was down 0.3%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) fell 0.2%, and iShares Core S&P 500 ETF (NYSEArca: IVV) was 0.3% lower.

The equity markets have taken a breather after hitting record highs. Market observers warn of increased risks at these levels due to lofty valuations across various segments and the slow pace of the economy’s recovery, the Wall Street Journal reports.

Jason Pride, chief investment officer for private wealth at Glenmede, warned that the months-long rally suggests stocks now have high valuations, Reuters reports.

“We are still in the cautiously bullish environment for the market on the whole,” Pride told Reuters, pointing to two supporting factors. “We’re going to get a vaccine-induced economic recovery, that’s No. 1. The flip side of that story is the markets have largely priced that in and driven themselves to over-valued territory. Markets are going to struggle with that.”

Nevertheless, the rollout of the Covid-19 vaccine and the possibility of more fiscal stimulus has helped support the mid-term economic outlook.

“The vaccine rollout is well advanced in the U.S. and the evolution of the virus is rather positive,” Bastien Drut, chief thematic macro strategist at CPR Asset Management, told the WSJ.

The recent pullback may be associated with rising inflation expectations due to the aggressive monetary and fiscal policies that have inundated the economy with liquidity.

Peter Essele, head of portfolio management at Commonwealth Financial Network, warned that there was a lot of irrational exuberance built into stock prices heading into 2021.

“We started to enter an environment where risk actually became a factor once again and notably inflationary risk,” Essele told Reuters. “Now it’s a question of whether the fundamentals are going to match the level of prices that currently exist.”

For more news, information, and strategy, visit the Equity ETF Channel.