“The Victory of Optimists” is a groundbreaking history of return on investment in the 20th century. The story of the past few weeks in the market could be called “the redness of a careful optimist.” From the beginning of August, after an astonishingly weak employment report, the market has been locked in a scenario of investor preferences. The Federal Reserve will soon cut interest rates. But it’s not because the real economy needs urgent help. This flattened the slightly expanded stock rallies as of the end of July, cooling overheated momentum inventory, providing bailouts for lagging sectors, curbing volatility, eliminating over-investment optimism, and expanding the S&P 500 run without a 3% pullback for more than four months. This week, already anticipated but unanticipated, we solidified the easy Fed’s outlook while maintaining the general view that there is a possibility of a flukey rise in weekly unemployment rates and that the underlying economy is stable or good. In this crowd-pleasing version of reality, the seemingly flooded labor market offers “just the wrong amount” to markets and policymakers, as the old ad catchphrases of casino hotels in Las Vegas are laid out. Believing the stalled job market is extraordinary (due to immigration crackdowns, demographics, and sharp, but declining tariff-driven trust shocks among companies), it is easy to decide that the Fed will embark on “reducing good news rates” next week. Investors can also argue that for good reason, Treasurys has been repeated violently (reducing yields to five-month lows). And that gold is roaring to new records, not because the Fed is losing its reliability or systematic macro risk, but because finances are widespread worldwide, and institutions are carefully diversifying from the dollar. Credit markets offer testimony in favour of this theory, betraying minimal concerns about economic stress and corporate solvency, and there is a high-yield debt spread near the most compressed read of this cycle. Economists and many investors are sensitive to a mix of factors that can plague the market and disrupt policymakers if it gets worse. In short, at this point, this refers to sticky, target inflation that coexists with a fundamental slowdown in growth and weakening of employment. This is a dynamic that no one wants to benefit from here. However, current inflation levels of 2.5% to 3% are rather unnoticeable looking back at decades, and cannot be handled easily unless the stock market causes a narrower Fed. And, absolutely, the starting point is relatively benign, as measured by the “Misery Index” and the sum of unemployment and CPI. Are we there already? Market behavior itself does not serve many persuasive causes due to keen concern. After the widespread release of CPI and weekly unemployment claims, the breakout to the new highs of the S&P 500 on Thursday could be led to a group of periodic rocks that you might want to see ahead of time: home builders, semiconductors, small caps, equal indexes, banks. The Bulls are also pinned in a history of a limited but peace of mind period when the Fed was cut after a long suspension while the stock market was nearby. The market then thanked us for designing an untouched, soft economic landing with a generational boom in technology investment, thanks to the glorious days of the mid-1990s. As a sidebar, Strategas Research notes that it is fairly rare for the Fed to be a reduction rate when the Fed is near record highs as it is now. Again, some of the fruitful investment phases of the early and mid-1990s precedents are brightened. Although such history confuses many time-tested patterns by which past cycles are often time-tested, it is understandable and worth keeping in mind. The current bull market first began while the Fed was still tightening. The Reverse Treasury yield curve over the past few years did not lead to a recession as expected. The tape is stretched a bit, and sometimes a big gathering on the day when data confirms that major bullish papers can be the short-term pinnacle of progress rather than the beginning of something new. The bond market was initially priced with a ridiculous pile-up of data, blaming it slightly above 4% of its 10-year slides by Tuesday, and blaming it a little higher by the end of the week. The idea that next week’s rate cut could become a “cell news” event suddenly became a popular call late this week, but the value of the stock’s rate cut here is plausible given that it is controversial as a predicted excuse to add risk rather than celebrating its concrete profit after the fact. Bespoke Note was registered as an “extreme over-acquisition” after a 1.6% increase this week, and for the first time since December, it was registered as two standard deviations above the 50-day moving average. Perhaps intuitively, the market tends to do better than average following such readings when it is on a broader upward trend. Still, that December instance led to a minimal uptick in two months before quarter momentum was unlocked and tariff sales took hold. Oracle’s Monstrous Rally shares this week after transformative multi-year revenue guidance associated with AI data center services recharges an AI theme that has one of its regular gut checks. Nvidia’s stocks appeared fatigued, with redundant infrastructure buildouts and many questions emerged about whether they would become increasingly dependent on debt financing. That’s one of those times when the rally proved to be robust enough to benefit from doubt, but participants in the open-minded market acknowledge that prices, valuations and attitudes have risen to heights that leave less room for error and leave room for potential disappointment. The 6,600 level on the S&P 500 was mostly nose-touched on Friday before the index droops to finish at 6584, making it a long-standing upside target for subtle technical market handicappers since late last year, including Piper Sandler strategist Craig Johnson and Macroliscore Devisors’ John Corobos. Korobos has opened the prospect that the index could reach 7,000 by early next year, but in the recent years he will flag the recent decline in price correlations between the “magnificent seven” stocks as “historic lows and “emotional indicators that suggest emotion.” This is a local metric and not extensive reckless evidence. The low correlation speaks to a lack of concern about risk across the market. Speaking of the grand Seven, this group has narrowed this margin as the wider sector has become more expensive, but the group is still trading at a healthy valuation premium in other parts of the market. To admit that the valuation itself has little predictive effect over the horizon for the year, there is no denying that the stocks are pretty rich here. The sustainability of revenue growth, the quality of business models, the strength of the balance sheet, the reduction in taxes and regulatory burdens for companies may be fair explanations of such valuations, but none of them negotiate them. The market finds itself at an interesting point, investors suddenly feel pretty certain the meaning of the macro picture and the Fed’s path from here, and the muscle flex of Bullmarket has just begun in the form of meme stock revivals, hype-driven IPOs, Splashy M&A deals. Elaine Garzarelli of Garzarelli Capital – yes, a famous strategist known for calling the 1987 crash and the subsequent market turn – suggests that the S&P 500 can remain highly rated and continue to advance with revenue growth. The IPOs, small caps and other laguards are outstanding despite the S&P 500 being a bit overrated. Of course, this time we may not be promised a vibrant stage, but it cannot be ruled out for sure after this year’s investors have made progress through “cell America” panic, “better, frightening” rebounds and months of careful optimism. (Learn the best 2026 strategies from within NYSE with Josh Brown and others on CNBC Pro Live. Tickets and info here.)
