What do you get for the market that already has everything? All right, maybe not everything, but investors have been blessed with an abundance of advantages and good fundamental fortune, along with the policy help the market both hoped for and expected. The bulls got a dovish turn from the Federal Reserve without much noticeable slowing in growth, with stock indexes at a record, credit markets blissfully sedate and capital investments running in torrents into the economy. Sectors geared to consumer spending, lending, securities trading and industrial activity have outperformed along with tech, hardly the behavior of a market desperate for policy help. Along with Wednesday’s quarter-percentage-point rate cut, the median projection was for two more this year, even as the forecast for economic growth and inflation ticked higher since June. The implicit message, heard clearly by the market, is that policy makers will be quicker to support growth than to restrain it proactively to inhibit inflation. An investment by Nvidia in Intel and an agreement to co-develop some semiconductor products sent Intel racing higher, a week after Oracle’s AI-revenue guidance did the same for that stock, signaling to investors the danger of calling the top in AI enthusiasm. The tape action has been hard to nitpick. The S & P 500 , up 1.2% last week, hasn’t had as much as a 3% pullback since May. The Nasdaq has remained pinned in statistically overbought state for nearly all of the past four months, strength giving way to strength even of latent selling pressure is building. Third-quarter earnings forecasts have actually risen over the course of the quarter, defying the normal downward-revision routine. Zooming out a bit, as this bull market approaches its third anniversary in a few weeks, the S & P 500 is riding a 25% annualized total return from the October 2022 low, not in the very top ranks of bull-market advances but plenty good enough to appreciate and celebrate. Which brings back the question of what one could possibly offer to a market that has already enjoyed so many blessings and material comfort, in order to further please and boost it from here? A few ideas: 1) More of what we already know it likes. In other words, simply the continuation of the current environment – a steady economy, flexibly supportive policy and tireless aggression among the builders of AI infrastructure – could be enough for a while. Trending markets tends to persist until the macro inputs erode or a shock intrudes. A 2%-ish real GDP growth economy driven by corporate capex and wealth-effect spending by the affluent, partially offset by a squeezed moderate-income consumer and tariff frictions – this has been an equity-friendly mix. The conspicuous stalling of job growth is nothing to cheer, but it has worked for the stock market because it shoved the Fed toward a dovish position while leaving plausible arguments that the labor market is not fully reflective of the underlying economic trajectory. In an essay posted Friday explaining his view on monetary policy, Minneapolis Fed President Neel Kashkari addressed the equity ebullience in the face of scarcer job creation: “The labor market and the stock market could both be right: Technology is driving rapid growth of industries that don’t require as much labor, resulting in a booming stock market and sluggish hiring environment.” Kashkari went on to explain this dynamic is part of what leads him to believe the neutral interest rate is higher than generally assumed, which means there might not be more than a couple of rate cuts between here and there. Perhaps that would become an issue for stocks down the road but it’s not today’s business. A significant contingent on Wall Street is seeing indications of a coming reacceleration of growth into 2026, whether due to lapping tariff effects, corporate-spending incentives from the new tax package, perhaps a heavy personal income-tax refund season as current withholding levels haven’t adjusted for some individual tax breaks in the same law. All remains to be seen, but the market is attuned to this prospect and priced accordingly. More of the same positive feedback from earnings and the economy will probably be necessary given the S & P 500 and Nasdaq 100 are right back to their current bull-market highs, with forward price/earnings ratios of 23 and 28, respectively. 2) Something vintage and obscure that might just come back in fashion. This covers small-cap stocks, which caught a spark from the Fed rate cut, just as the dog-eared stock-market owner’s manual would suggest “should” happen. The Russell 2000 index’s pop to a new high Thursday – its first since November 2021 after a near miss last December – won over many fans among chart-focused handicappers. .RUT 5Y mountain Russell 2000, 5 years Some version of “There is no such thing as a triple top” was repeated often, with others citing heavy, relentless outflows from small-cap funds and some perky action within certain sectors such as lower-market-cap pharmaceuticals. It all amounts to a lot of terrain that could be made up with just a modest intake of fresh, opportunistic capital, given that the entire Russell 2000 has less market value than either Nvidia or Microsoft alone. It still seems the conditional path under which smaller stocks can sustain a lasting run of outperformance from here is fairly narrow: More Fed easing, tight credit spreads, an active M & A environment, upturn in the economy and sustained enthusiasm for lower-quality speculative names that populate much of the Russell 2000. 3) Simply inviting more people to the party to appreciate and covet all that the market already possesses. This is the oncoming-bubble scenario. Because of how far the market has come, how rich valuations have begun to look, how elevated investor equity exposures are and how concentrated the indexes have grown, market professionals are beginning to speak more openly – and more warmly – toward the prospect that a genuine euphoric asset ascent could be ahead. Strategists at JPMorgan last week ran the math on what further upside one could expect if global investors lifted their equity allocations to peak levels from the year 2000, coming up with a 47% potential climb from here . Bank of America’s global strategist Michael Hartnett on Friday detailed the collective characteristics of ten subjectively identified investment bubble since 1900: “average trough-to-peak gains of 244%, ending with average trailing P/E of 58x, equity index trading 29% above 200-day moving average.” The Magnificent 7 today is up 223% since Mar 2023 lows, its trailing P/E is 39x and the group is about 20% above its 200dma. So, Hartnett says, “more to go.” Bespoke Investment Group has tracked how the present Nasdaq since the ChatGPT launch is following closely the path it took after the Netscape Web browser arrived in 1994. .IXIC 5Y mountain Nasdaq Composite, 5 years Another rhyme is the way the S & P 500 this year is in sync with how it traded into and out of the 1998 mini-crash caused by hedge-fund blowups, which maps to April’s tariff-panic near-bear market. All of these back-fitted historical analyses place the current market somewhere in 1997, 1998 or 1999, with the upside acceleration, euphoric sentiment and hyperactive capital markets mostly ahead of us. As I always say, nothing guarantees us a rerun of that episode. And arguing today that we’re short of the peak-2000 extremes simply means the market isn’t set up for a 75% crash in the Nasdaq over a couple of years, nor the S & P 500 poised to be cut in half over the same time frame. Still, it helps to know what game one is playing, even if it’s not clear how much time is left on the clock. More immediately, we have a market upshifting, at least in several excitable precincts, yet without the kind of across-the-board over-aggressive professional investor positioning that can set the nastiest of traps. Deutsche Bank strategists point out some of the localized fun and games: “A basket formed of stocks with the highest net call volumes in each previous week rallied hard this week after underperforming the last two months. This in our view is a good indicator of rising risk appetite and momentum-driven buying.” Next week, for whatever it’s worth, is on average the weakest of the year, with some seasonal rebalancing flows and pre-fourth-quarter positioning involved. We just, as of Friday afternoon, exceeded 6666 on the S & P 500, exactly 10-times its climactic generational low from the Global Financial Crisis in March 2009. Surely it would be far too cute for this to prove some kind of significant peak (though bottoming at 666 was pretty cute too). Still, it’s a reminder of how generous the stock market can be over time, which is something to be grateful for even if it can at times make investors harder to impress.
Investors got the rate cut they wanted. So what’s next to keep the bull market going?
Sep 20, 2025
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