The most gifted runners not only go faster and with a smoother gait. They also need less recovery time. The phase of the current bull market that pushed off the blocks six months ago is proving elite at refreshing itself with the briefest of respites before continuing forward to the next mile marker. The S & P 500 fell a maximum of 2.98% using intraday prices, nearly all of that in one day on Oct. 10, after President Donald Trump rhetorically re-escalated the U.S-China trade confrontation. The index then spent the next nine trading days inside that single-day range until it broke to a fresh high this past Friday, briefly surpassing 6,800, after an unthreatening CPI report removed one possible impediment to the two more Federal Reserve rate cuts expected by year’s end. The main reason the CPI report released the indexes higher is that it simply passed, making Big Tech earnings next week the next known swing factor and allowing the old favorites of the AI trade to reassert leadership. .SPX 3M mountain S & P 500, 3 months This column last week suggested that “an ideal scenario for the remainder of the year would have the recent choppiness last a bit longer to qualify as a proper scare, skimming the froth off the speculative stuff and resetting expectations in a way that rebuilds investors’ capacity to be surprised to the upside.” As of now, it appears no genuine scare was needed, unless we count the couple of days last week when gold, crowded momentum plays and unserious meme stocks were liquidated in a slightly sloppy but ultimately benign rotation. Evercore ISI equity strategist Julian Emanuel makes the case that the manic surge-and-swoon act in gold and connected high-velocity speculative stuff need not dictate the broader market path: “As was the case in early 2021 when the peak in meme stocks, SPACs and profitless tech created brief instability in markets generally, gold’s selloff has been accompanied by selloffs in other speculative themes from quantum computing to lithium to uranium. Yet as it was in 2021, where the S & P 500 rallied an additional 23% from the meme-stock fizzle to the capital markets fueled peak a year later, rumors of speculation’s demise in 2025 are greatly exaggerated.” This is well-observed, though the obliteration of the frothiest market themes from their early 2021 peak was far more damaging than anything seen so far this month. Tireless retail buying And anything resembling the demise of the speculative fervor is hard to locate. Citadel Securities equity trading-flow guru Scott Rubner on Friday extolled the persistent aggression in somewhat valuation-insensitive small-investor activity, noting that 22% of trading volume now comes from retail accounts – the most since (yup) February 2021 – and retail has been a net buyer of stocks 23 of the past 27 weeks. And, truly, what would deter such excitable, tireless buying among non-professionals when AI hype is being invoked by so many adjacent industries and marginal companies, when Robinhood is blurring the line between investing and gambling with sports-prediction contracts in their app, when whole subsectors (rare minerals, quantum computing) get pumped to the stratosphere on the mere hint of the Trump administration possibly taking a stake, in a dynamic I call “too rigged to fail?” Yet for all the fun and games, the genuine fundament of corporate value – real profits – are coming through nicely to substantiate generally elevated valuations. Companies so far are beating forecasts at around an 80% rate, better than the norm. Stocks aren’t universally being rewarded for it, but it moves the chains on forward earnings-growth forecasts. Of course, total S & P 500 earnings for 2025 are now looking as if they’ll come in below where consensus pegged them at the start of the year. On Dec. 31, the full-year estimate was $274, which fell to $264 by July and is now up to $268. That’s a 2% decline over a ten-month stretch in which the S & P 500 index is up 15.5%. So, yes, the market is more expensive now, but there’s always next year. Consensus for 2026 is tracking above $304, which is now becoming the denominator for all investor valuation assumptions and return projections. This is what bull markets do, they roll forward their optimism until forced to rethink it. Was the little wobble in popular momentum stocks enough to soften up expectations to receive good news on tech results with enthusiasm? John Flood, Head of Americas Equities Sales Trading at Goldman Sachs, says yes, in a trading-desk note: “This week’s painful drawdown in momentum…has only added to the already significant wall of worry out there. As a result, the sentiment/positioning setup into the heart of mega-cap tech earnings is the friendliest I have seen in quite some time. If no foot faults from MAGMA (Microsoft, Amazon, Google, Meta, Apple) next week (we are not expecting any) I am bracing for another leg higher at the index level led by super-cap tech.” Year-end upside again? Just a few reasons it’s tough for bears to find a meal in a year like this, especially as we get deeper into the fall. Everyone knows most years have an upward bias in the final two months of the year, even more so when the first ten months have been strong. Granted it’s hard to make a specific case for why this year will fall into the 20% of instances when year-end seasonality failed, yet it’s worth noting that the seasonal signals have been glitchy this year. We were supposed to be up handily into April, but the S & P had a 15% year-to-date drawdown by April 8. The chart below, from Renaissance Macro Research, plots the forward-three-month S & P 500 return for each date, based on decades of market history. Last week we hit what’s supposed to be the best entry point for three-month-forward gains. But note that almost exactly three months ago was meant to be the worst moment to buy (in late July) and since then the index is up 6%. Two weeks ago, the president’s social-media growling about higher China tariffs exposed a node of complacency among investors, who as a group had turned their focus away from the trade-policy flux. Rationally so, in a sense, given the incentives all around to be sure that things settle into a manageable arrangement. Alongside a few corporate-credit hiccups and overbought speculative sectors, the risk-off reaction briefly overwhelmed the market’s usual capacity to absorb shocks through rotation. If forced to identify another node of complacency it might be investors’ comfort level with the underlying sturdiness of the economy. The conventional wisdom sees meager job growth as largely a result of immigration restrictions and demographics, disconnected from still-healthy GDP-tracking models that capture urgent capex levels and free spending by the affluent. It’s a plausible and defensible stance. And it’s true that overall (unofficial) consumption data and corporate commentary are not raising any alarms. Still, the market is no longer sending as emphatic a message about the pace of growth as it was several weeks ago, even. Equal-weighted consumer discretionary stocks are no longer outperforming. Industrials are better but have stalled on a relative basis. Veteran strategist Jim Paulsen of Paulsen Perspectives says, “A good proxy for U.S. economic surprises may be the relative performance of S & P cyclical sectors. Cyclicals have continued underperforming badly since Oct 1!” Warren Pies, founder of 3Fourteen Research, points out, “During this October wobble, homebuilders and other key cyclical areas of the market have lagged. Simultaneously, the AI trade has powered higher. Against the backdrop of falling yields, these intra-market moves point to nascent growth concerns.” Accumulated anecdotes could include an uptick in corporate layoff news, weak S & P PMI manufacturing sentiment, mortgage-application volumes not responding much to lower rates. There’s a good chance the market is cushioned against a growth scare by AI, by the Fed’s dovish turn and by the projected stimulative effects of the new tax law fattening tax refunds early next year. And maybe no news can remain good news for now in the absence of government data, and then perhaps the Street will give the data a Mulligan once it comes given the shutdown distortions. This low-volatility ascent since April quite resembles the imperturbable rally through all of 2017. That run required a steep acceleration higher into January 2018 accompanied by euphoric investor expectations for policy-driven growth, reaching serious excesses well beyond present conditions before breaking hard into a flash correction. None of this is enough to withhold the benefit of the doubt from the bulls for now, of course. But such issues can serve as a study guide for when the tape goes in search of an excuse to administer its next test.
