How can the market keep climbing while EVERYONE seems worried?
On one side we see record profits, forecasts for fresh all time highs, artificial intelligence pushing growth, and plenty of optimism.
On the other side, warnings are getting louder with phrases like “The market might have reached its ceiling”. So who is right? Are we at the beginning of a new bull run, or is this just another bubble ready to burst?
HAVE WE HIT THE TOP?
According to many analysts, markets look stretched. Well known trader Stan Weinstein points to strong signs that the market may have topped out. In his weekly report he stresses that the S&P 500 printed a “deceptive new high” in late October. The index touched a record, yet the underlying structure wasn’t solid.
He explains that despite the new high, the advance decline lines were poor since more stocks were falling than rising. His own indicators didn’t flash clear bullish signals either. Even more troubling, for four straight weeks there have been more downgrades and selling activity than upgrades and buying.
For that reason he insists “this is NOT just a normal pullback. Caution is needed”. And with trading volumes lower due to the holiday season, volatility can easily spike.
BULLISH SIGNS
At the same time there are voices saying “This is the chance”. Morgan Stanley for example sees current weakness as an opportunity. Michael Wilson notes that “The present weakness shows we are closer to the END of the correction, not the beginning”.
His analysis rests on three points. First, alternative labour market data signals a slowdown which is actually positive because it gives the Fed room to cut rates.
Second, the market has already priced in this slowdown since April. Third, liquidity conditions are about to improve with quantitative tightening ending on December first.
Add to this the upbeat expectations for corporate earnings which are projected to grow seventeen percent in 2026. All of this together creates a constructive outlook for the market in the coming months.
At the same time, Deutsche Bank analysts project the S&P 500 reaching eight thousand points by the end of 2026, roughly twenty percent above current levels.
Their forecast is based on four main drivers:
(a) rapid progress in artificial intelligence that is expected to boost productivity sharply
(b) the rally will not be limited to tech but will broaden to cyclical sectors like financials and consumer goods
(c) the US economy is expected to grow at 2.4 percent in 2026 thanks to tax relief, lower trade uncertainty, and recovery from disruptions such as shutdowns
(d) the global backdrop is positive with Europe keeping steady momentum, Germany supported by a large fiscal package, and India on track to surpass Japan and become the fourth largest economy worldwide.
Together these factors create an impressive backdrop for the global economy and markets, suggesting that the rally may still have plenty of runway.
Posted Using INLEO