Wall Street economists are divided over whether the market’s strong run can continue, despite warning signs and uncertainty about a potential Federal Reserve interest-rate cut. The S&P 500 index has logged a total return of 10% year-to-date, more than recovering from a near-20% tariff-panic collapse in April.
Despite three warm inflation readings this week, the market has largely shrugged them off, holding near record highs. Optimists argue that the Fed is trying to do so, while pessimists point out that valuations are full and credit spreads are tight. However, market pricing suggests a 25 basis-point reduction in short-term rates as a “Nice to have” rather than a “Need to get.”
Earnings forecasts for the remainder of the year are on the rise again, with tech players driving growth. Historically, when the Fed resumes an easing campaign after a pause of at least six months, stocks have responded well over subsequent months. Nevertheless, there’s no doubt the market sometimes takes credit in advance for a hoped-for future that might never arrive.
Some economists, including those at Morgan Stanley, believe Powell’s remarks at Jackson Hole symposium will be noncommittal and data-dependent. A possible “tell” would come from the bond market’s reaction to any data or rhetoric that makes a cut less likely. If the 10-year Treasury yield were to rush lower in the face of reduced perceived chances of a rate cut, it could be taken as bonds declaring a high risk of a policy mistake.
Similarities between the current recovery and those of 1998 and 2018 are striking. Historically, sharp corrections result from sudden shocks, stop just short of a 20% decline, and are not associated with a recession. While there’s no margin of safety to argue for, the market’s four-month advance suggests it’s unlikely to be the “Big One.”
Source: https://www.cnbc.com/2025/08/16/stocks-power-to-record-highs-again-despite-warning-signs-can-the-markets-strong-run-continue.html