All three of the core premises behind the bull market are coming under questioning
HS 15/11/2025
The bull market probably didn’t die last week. But its recent ructions might offer a glimpse of its eventual demise, the way bouts of angina can foreshadow a heart attack. The S & P 500 index survived the week virtually unchanged, but only after absorbing its third 3-4% pullback in five weeks, after going six months without even one. At Friday’s morning low (which was fractionally above the prior Friday’s low), the index was back to a level first reached in late September. On both Fridays, the index managed to rebound to nearly the same spot around 6,730. Revisiting that level from the third week in September brought it back to the blissful moment when I asked here , “What do you get for the market that already has everything?” That was right after the Federal Reserve cut rates into a then-solid-seeming economy, the AI-infrastructure momentum was thrilling investors and another bountiful earnings season lay just ahead. .SPX 3M mountain S & P 500, 3 months Since then, by definition, the market has flattened out and chopped around, making numerous new highs along the way that didn’t stick, as the anticipated good news already priced in turned more ambiguous. While the churning this month has not yet broken beyond the bounds of a routine consolidation within a long-running uptrend, last week all three of the core premises of the bull market came under fresh scrutiny. A handful of widely circulated cautious reports on the AI buildout tried to quantify just how aggressive the assumptions for future revenue must be to guarantee a proper return, while the industry’s rising use of debt for data-center finance stirred old memories of past credit ruptures. The consensus belief that the Federal Reserve would continue to trim rates toward a lower “neutral level” as insurance against further labor-market weakness was challenged by concerted hawkish messaging from Fed members casting a cut in significant doubt. The broad expectation that 2026 would be a “clean” year for policy, when tax benefits kick in, tariff effects are lapped and deregulation can dispense relief is looking less certain, with a potential Supreme Court disallowance of some tariffs prolonging the improvisational protectionism. The thing is, once stock prices start to wobble, the nagging worries will be right there waiting to be noticed and invoked, whether they are the cause or not. Signs of the top? Once Nvidia fails on two attempts to push above the $200 price level and the $5 trillion market-cap threshold, ears start to open to “Big Short” legend Michael Burry’s warnings about GPU accounting methods. And when, in the same week, Burry is found to have closed his hedge fund while Warren Buffett publishes his last Thanksgiving letter to investors before handing over the CEO title of Berkshire Hathaway, traders’ “signs of the top” alarms start to chirp. And the beeps only get louder when all that happens within days of a disorderly Bitcoin breakdown and the GenZ-courting brokerage firm Robinhood starting a service to send literal cash to clients via a delivery app. Maybe, though, the Nasdaq 100 had simply got too extended, momentum strategies too crowded, fast-money too overconfident in low-quality stocks and valuations too elevated to withstand a normal rally pause? Here’s the forward price/earnings ratio of the Nasdaq 100, which during the current three-year AI-propelled bull market had been capped at 28 – until last month. Two weeks ago, this column noted the S & P 500 was riding one of the half-dozen longest streaks in decades without at least a 5% drop, “which suggests the clock is ticking at least faintly on this orderly advance,” but went on to note that the first 5% pullback, “whenever it comes, has typically not marked the ultimate top of a bull market.” Likewise, the brutal purge in recent weeks of the “high-beta,” or most volatile and aggressive, stocks has been destabilizing to the indexes but has not swamped every corner of the market. Strategas Group technical strategist Chris Verrone noted on Friday that in general the peak in beta as a characteristic does not usually coincide with an absolute top for the overall market. The tape tried its best to rotate away from this danger, with everyone suddenly observing the ferocious comeback in the healthcare sector, which had been cheap and unloved for months during its serious underperformance until a spark was lit by some drug-pricing deals and then tactical players took to using the group as a source of “anti-momentum” during this selloff in the AI high-flyers. December rate cut? The repricing of Fed-policy expectations is likely to leave Wall Street in suspense over the coming weeks, now that multiple voting members have stated some resistance to endorsing a rate cut on Dec. 10. This raises the stakes for the resumption of official economic data releases with the government now open. The market itself has been showing some encroaching concern over softening consumer conditions for a while now. The notion of a bifurcated “K-shaped” economy favoring wealthy asset owners over moderate-wage earners has quickly become a cliché. In the past month, the observation that the new fiscal package will generate higher income-tax refunds in the first quarter has gone from “No one is talking about this” to “Everyone is banking on this” to rescue the 2026 growth story. Will no rate cut in a few weeks raise the specter of a policy blunder? It’s not clear yet. Renaissance Macro Research founder Jeff DeGraaf put it this way on Friday: “Changing expectations is one thing, making a policy mistake is another, and the market is walking a messaging tight rope. It’s likely the primary driver behind the recent improvement in healthcare vs. technology names and speaks more broadly to the defensive vs. cyclical performance story. Credit spreads and financials will be an important arbiter in this story. For now, they’re seeing this as an adjustment of expectations, not the crossing of a policy Rubicon.” Whether GDP perks up or not, corporate results are holding up their end of the bargain for now. More than a third of S & P 500 companies have raised earnings guidance this quarter. Outside the bust-to-boom pandemic period, this trend was last seen in late 2017, near the end of a strong, calm market advance similar to the one that began last April. (While encouraging that corporate profitability can continue to act as a cushion for a while, that upwelling of optimism at the end of 2017 – fueled by a just-passed tax cut and excitement over “run-it-hot” economic policies to come – gave way to an early-2018 volatility eruption as the well-known pattern of choppy mid-term election years played out.) Along with the running debate over the Fed-economy interplay, the bull-bear argument over the fundaments of the AI-investment blitz will simply be with us indefinitely. We have arguments that it’s not a bubble at all, a bubble in the making, a bubble that’s peaked, or not a bubble because so many are calling it a bubble. The talk is silly, crucial, impossible to settle and necessary all at once. Is it healthy that the skeptical view of this massive societal bet is so widely propagated? Probably. Is it somewhat reassuring that the market is punishing the likes of Meta and Oracle and CoreWeave as seeming either poor stewards of capital or strategically disadvantaged? Sure. Does it inoculate the market from further excesses building or massive impairment of portfolios? Nope. For a nifty illustration of how the perceived winners and losers can shift in a hurry as the market tries to price all versions of the future rushing toward us, the aggressive tech-focused hedge fund Coatue Management, run by Philippe Laffont, more than tripled its stake in Alphabet last quarter, as reported late Friday. Just last June, Laffont released a list of what it expects will be the 40 largest tech companies in 2030 and omitted Alphabet entirely. It’s tough to get too comfortable with any market view in such quick-shifting sands. Seasonal patterns must still be considered among the positives — for what that’s worth in a year when such historical tendencies haven’t helped much. Yet bitcoin’s inability to stanch the bleeding as it nears a 25% loss over five weeks remains unnerving. It’s undeniable that the tape has shown resilience keeping the recent dips brief and shallow, but it has resulted in incomplete pullbacks that have failed to create a cleansing flush and could compound perhaps into next year to set up a tougher setback. With all that said, the odds and weight of the evidence continue to suggest this setback is not the onset of “the big one,” though the early stages of an eventual more consequential peak might not look and feel all that different.
