Perhaps the bull market didn’t end last week. But just as an attack of angina is a precursor to a heart attack, its recent commotion may offer a glimpse of its eventual demise. The S&P 500 came through the week largely unchanged, after absorbing a 3% to 4% decline for the third time in five weeks, after six months without a decline. At Friday morning’s low, which was slightly above the previous Friday’s low, the index returned to levels first reached in late September. On both Fridays, the index recovered to roughly the same level as around 6,730. Revisiting that level from the third week of September reminded me of the blissful moment here when I asked, “What can we get from a market that already has everything?” It was just after the Federal Reserve had cut interest rates in an economy that looked strong at the time, momentum in AI infrastructure was exciting investors, and another bumper earnings season was just around the corner. .SPX 3M Mountain S&P 500, 3 Months Since then, the market has, by definition, flattened and chopped, making many new highs along the way but never settling. Because the expected good news that was already priced in became more ambiguous. While this month’s volatility has yet to extend beyond routine consolidation within a long-term uptrend, all three core assumptions of the bull market came under new scrutiny last week. Several widely circulated thoughtful reports on building AI have attempted to quantify how aggressive future revenue assumptions must be to ensure adequate returns, while the industry’s increased use of debt for data center financing has evoked old memories of past credit busts. The consensus that the Fed would continue to lower interest rates toward a lower “neutral level” as insurance against further labor market weakness was challenged by hawkish messages from Fed members that cast serious doubt on rate cuts. The widespread expectation that 2026 will be a “clean” year for policy, with tax incentives starting to roll in, the impact of tariffs winding down and deregulation providing relief, is less certain as the Supreme Court may disallow some tariffs and ad hoc protectionism could prolong. The problem is, once a stock price starts to fluctuate, whether it’s the cause or not, a nagging fear is just there, waiting to be noticed and called out. A sign of the summit? After Nvidia fails twice in its attempts to cross the $200 price level and $5 trillion market cap threshold, “Big Short” legend Michael Burry’s warnings about GPU accounting techniques begin to open up. And in the same week, while Warren Buffett released his final Thanksgiving letter to investors before taking over as CEO of Berkshire Hathaway, traders’ “signs at the top” alarms began to ring when it was revealed that Barry had shut down his hedge fund. And the beeps get even louder when all this happens within days of Bitcoin’s chaotic collapse and Gen Z-focused matchmaking brokerage firm Robinhood launching a service that sends literal cash to customers via its delivery app. But perhaps the Nasdaq 100 has simply stretched too far, momentum strategies have become too crowded, fast money has become too confident in low-grade stocks, and valuations have simply risen too high to withstand the usual pauses. This is the expected price/earnings ratio for the Nasdaq 100. The current three-year AI-driven bull market was capped at 28 until last month. Two weeks ago, this column noted that the S&P 500 was riding one of the longest six-company rally in decades without falling at least 5%, saying, “This suggests that the clock is at least slightly ticking on this orderly rally,” but went on to say that the first 5% pullback “whenever it comes, typically does not signal the final high of a bull market.” Similarly, the brutal purge of “high beta” stocks, or the most volatile and aggressive stocks, in recent weeks has destabilized the index, but it has not reached every corner of the market. Chris Verrone, technical strategist at Strategas Group, noted on Friday that the peak of beta as a property generally does not usually coincide with the absolute top of the overall market. This tape tried its best to distance itself from this danger, and everyone suddenly observed a furious resurgence in the healthcare industry. The healthcare industry was cheap and unloved for months during a severe underperformance, but then some drug price deals ignited a spark, and then tactical players started using the group as a source of “counter-momentum” during this AI high-flyer’s sharp decline. Interest rate cut in December? A reassessment of Fed policy expectations is likely to keep Wall Street in suspense in the coming weeks, as several voters have expressed some reluctance to support a Dec. 10 rate cut. This raises the possibility that the government will resume officially releasing economic indicators. The market itself has been showing concern about a softening consumer environment for some time now. The notion that a bifurcated “K-shaped” economy favors wealthy asset owners over moderate wage earners quickly became a cliché. Last month, the view that new fiscal policy would increase income tax refunds in the first quarter went from “no one is talking about this” to “everyone is counting on this” to salvage the 2026 growth story. If there is no rate cut in the coming weeks, will there be concerns about policy failure? It’s not clear yet. Jeff DeGraaf, founder of Renaissance Macro Research, said Friday. “It’s one thing to change expectations; it’s another to get policy wrong, and markets are walking a tightrope of getting their message across. This is likely the main driver behind the recent improvement in health care and technology names, and it tells a broader story of defensive versus cyclical performance. Credit spreads and financials will be the key arbiters of this story. For now, they see this as an adjustment of expectations and an adjustment of expectations. Rubicon policy.” Regardless of whether GDP picks up or not, corporate performance remains at a downward trend for now. More than one-third of S&P 500 companies raised their profit estimates for the current quarter. Outside of the pandemic’s collapse-to-boom transition period, the last time we saw this trend was in late 2017, when a strong and benign market advance similar to the one that began last April was coming to an end. (While encouraging that corporate profitability may continue to act as a cushion for some time to come, the surge of optimism at the end of 2017, fueled by just-passed tax cuts and excitement about the “scorching” economic policy ahead, gave way to an explosion of volatility in early 2018 as the familiar pattern of an eventful midterm election year played out.) In addition to the ongoing debate over the Fed’s interaction with the economy, the bullish debate also continued. The great offensive over the fundamentals of AI investing will be with us forever. There are arguments that this is not a bubble at all, that a bubble is forming, that the bubble has peaked, or that it’s not a bubble because so many people are calling it a bubble. This story is stupid, important, impossible to solve, and necessary all at once. Is it healthy to have such widespread skepticism about this massive social gamble? Perhaps. Is it some comfort that the market is accusing companies like Meta, Oracle, and CoreWeave of having poor capital management or being strategically disadvantaged?Of course. Will it inoculate the market against further overbuild- ment and massive portfolio write-downs?No. As reported late Friday, in a nice illustration of how quickly perceptions of winners and losers can change as markets try to price in every version of the future that’s thrown at us, Cortue Management, an aggressive, tech-focused hedge fund run by Philippe Lafond, more than tripled its stake in Alphabet in the last quarter. Just last June, Raffont released a list of the 40 largest tech companies expected to grow in 2030, but Alphabet was omitted entirely. In such rapidly shifting sands, it is difficult to become too comfortable with any market view. Seasonal patterns still need to be considered among the positive factors. How valuable is that in a year when such historical trends didn’t help much? But the inability to stem the bleeding remains worrying as Bitcoin approaches a 25% drop in five weeks. While there is no denying that this tape has shown the resilience to keep the recent selloff short and shallow, it could end up being an incomplete pullback, failing to produce a cleansing flash, and perhaps leading to an even more severe pullback into next year. That said, the probability and weight of the evidence continues to suggest that this setback is not the beginning of “big things,” although the early stages of an ultimately more significant peak may not look or feel all that different.
